AGREEMENT AND PLAN OF MERGER
BY AND AMONG
HFS INCORPORATED,
CBC ACQUISITION CORP.,
FREMONT INVESTORS, INC.
AND
COLDWELL BANKER CORPORATION
MAY 1, 1996
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS...................... 1
Section 1.1 Defined Terms......................................1
Section 1.2 Other Definitional Provisions......................6
ARTICLE II
THE MERGER.........................6
Section 2.1 The Merger.........................................6
Section 2.2 Effective Time of the Merger.......................6
Section 2.3 Closing............................................7
Section 2.4 Effects of the Merger..............................7
Section 2.5 Articles of Incorporation; By-Laws.................7
Section 2.6 Directors and Officers.............................7
ARTICLE III
CONVERSION OF SHARES;
DISSENTING SHARES; PAYMENT.................8
Section 3.1 Conversion of Shares...............................8
Section 3.2 Dissenting Shares..................................8
Section 3.3 Exchange of Shares.................................9
Section 3.4 Treatment of Employee Options.................... 11
Section 3.5 Escrow Deposits.................................. 11
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF FREMONT
AND THE COMPANY.................... 11
Section 4.1 Representations and Warranties of
Fremont....................................... 11
Section 4.2 Representations and Warranties of the
Company....................................... 13
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB.... 26
Section 5.1 Due Organization and Power of Parent and
Sub........................................... 26
Section 5.2 Authorization and Validity of Agreement.......... 26
Section 5.3 No Conflict...................................... 26
Section 5.4 Governmental Consents............................ 27
Section 5.5 Purchase for Investment.......................... 27
Section 5.6 Brokers, Finders, etc............................ 27
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ARTICLE VI
COVENANTS....................... 27
Section 6.1 No Solicitation.................................. 27
Section 6.2 No Changes with respect to Common Stock.......... 28
Section 6.3 Conduct of Business.............................. 28
Section 6.4 Access........................................... 30
Section 6.5 No Public Announcement........................... 31
Section 6.6 Notice of Developments........................... 31
Section 6.7 Expenses......................................... 32
Section 6.8 Additional Agreements............................ 32
ARTICLE VII
TAX MATTERS...................... 33
Section 7.1 Transfer Taxes................................... 33
Section 7.2 Tax Indemnification by Fremont................... 33
Section 7.3 Tax Indemnification By Parent.................... 34
Section 7.4 Tax Returns...................................... 34
Section 7.5 Estimated Taxes and True Up...................... 35
Section 7.6 Procedures Relating to Indemnification
of Tax Claims................................. 36
Section 7.7 Cooperation with Respect to Tax Matters.......... 37
Section 7.8 Section 338 Election............................. 37
ARTICLE VIII
CONDITIONS TO THE CLOSING............... 39
Section 8.1 Conditions of Obligation of Each Party........... 39
Section 8.2 Additional Conditions to the Obligations
of Parent..................................... 39
Section 8.3 Additional Conditions to the Obligations
of the Company and Fremont.................... 41
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER........... 41
Section 9.1 Termination...................................... 41
Section 9.2 Effect of Termination............................ 43
ARTICLE X
MISCELLANEOUS..................... 44
Section 10.1 Survival......................................... 44
Section 10.2 Employees........................................ 44
Section 10.3 Brokers and Financial Advisors................... 45
Section 10.4 Notices.......................................... 45
Section 10.5 Interpretation................................... 46
Section 10.6 No Third Party Beneficiaries..................... 46
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Section 10.7 Amendment........................................ 46
Section 10.8 Extension; Waiver................................ 46
Section 10.9 Entire Agreement................................. 47
Section 10.10 Successors and Assigns........................... 47
Section 10.11 Governing Law.................................... 47
Section 10.12 Counterparts..................................... 47
EXHIBITS
Exhibit A - Form of Escrow Agreement
Exhibit B - Form of Merger Letter of Transmittal
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is dated as of May 1, 1996 among HFS
Incorporated, a Delaware corporation (the "Parent"), CBC Acquisition Corp., a
Delaware corporation and a direct wholly owned subsidiary of Parent ("Sub"),
Fremont Investors, Inc., a Nevada corporation ("Fremont"), and Coldwell Banker
Corporation, a Delaware corporation and a direct subsidiary of Fremont (the
"Company").
RECITALS:
WHEREAS, the boards of directors of Parent, Sub, Fremont and the Company
have each approved the terms and conditions of the business combination
between Parent and the Company to be effected by the merger (the "Merger") of
Sub with and into the Company, pursuant to the terms and subject to the
conditions of this Agreement and the General Corporation Law of the State of
Delaware (the "Delaware Statute"), and each deems the Merger advisable and in
the best interests of each corporation; and
WHEREAS, each of Parent, Sub, Fremont and the Company desires to make
certain representations, warranties, covenants and agreements in connection
with the Merger.
NOW, THEREFORE, in consideration of the premises and mutual covenants and
agreements contained in this Agreement, the parties agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Defined Terms. For purposes of this Agreement, the terms
defined in this Agreement shall have the respective meanings specified herein,
and, in addition, the following terms shall have the following meanings:
"Affiliate": as to any Person, any other Person which, directly or
indirectly, is in control of, is controlled by, or is under common
control with, such Person; provided that Bechtel Group, Inc. and Bechtel
Enterprises, Inc., and any Person controlled by either or both of Bechtel
Group, Inc. or Bechtel Enterprises, Inc., shall not be deemed to be an
Affiliate of Fremont or the Company. The term "control" (including, with
correlative meanings, the terms "controlled by" and "under common control
with"), as applied to any Person, means the possession, direct or
indirect, of the power to direct or cause the direction of the management
and policies of such Person, whether through the ownership of voting
securities or other ownership interest, by contract or otherwise. For all
purposes of this Agreement, Bechtel Group, Inc. and Bechtel Enterprises,
Inc. shall not be
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deemed to control Fremont, the Company or any subsidiary of Fremont or
the Company.
"Agreement": this Agreement and Plan of Merger, together with all
schedules and exhibits referenced herein, as amended, modified or
supplemented from time to time.
"Board of Directors": the board of directors of the Company or, to
the extent legally permissible, a duly constituted committee thereof.
"Business Day": a day other than a Saturday or a Sunday or other day
on which commercial banks in New York City are authorized or required by
law to close.
"Code": the Internal Revenue Code of 1986, as amended.
"Common Stock": the shares of common stock of the Company, $.01 par
value per share.
"Confidentiality Agreement": the Confidentiality Agreement between
Fremont and Parent dated March 25, 1996.
"Contractual Obligation": as to any Person, any provision of any
note, bond or security issued by such Person or of any loan agreement,
mortgage, indenture, deed of trust, lease, license, franchise, contract,
agreement, instrument or undertaking to which such Person is a party or
by which it or any of its property or assets is bound.
"Dollars" and "$": dollars in lawful currency of the United States
of America.
"Environmental Laws": any and all foreign, federal, state, local or
municipal laws, rules, orders, regulations, statutes, ordinances, codes,
enforceable decrees or requirements of any Governmental Authority
regulating, relating to or imposing liability or standards of conduct
concerning protection of human health or the environment, as now or may
at any time on or prior to the Closing Date be in effect.
"Environmental Permit": any license, permit, order, approval,
registration, authorization, or qualification required under any
Environmental Law.
"Environmental Report": any report, study, assessment, audit, or
other similar document that addresses any issue of actual or potential
noncompliance with, or actual or potential liability under, any
Environmental Law that may in any way affect the Company or any
Subsidiary.
"ERISA": the Employee Retirement Income Security Act of 1974, as
amended.
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"Escrow Agreement": the escrow agreement set forth in Exhibit A
hereto.
"Financing Lease": any lease of property, real or personal, the
obligations of the lessee in respect of which are required in accordance
with GAAP to be capitalized on a balance sheet of the lessee.
"Franchisee": any Person who owns or possesses the right to operate
a Coldwell Banker franchised business under a franchise or license
agreement entered into with the Company, any Subsidiary or any
Subfranchisor.
"FTC Act": the Federal Trade Commission Act, as amended, and the
rules and regulations of the Federal Trade Commission promulgated
thereunder, including without limitation Disclosure Requirements and
Prohibitions Concerning Franchising and Business Opportunity Ventures,
all as the same shall be in effect from time to time.
"GAAP": generally accepted accounting principles in the United
States of America as in effect from time to time.
"Governmental Authority": any nation or government, any state or
other political subdivision thereof and any entity (including without
limitation a court) exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government.
"Governmental Order": as to any Person, any judgment, injunction,
decree, order or other determination of an arbitrator or a court or other
Governmental Authority, in each case applicable to or binding upon such
Person or any of its property or to which such Person or any of its
property is subject.
"Guarantee Obligation": as to any Person (the "guaranteeing
person"), any obligation of (a) the guaranteeing person or (b) another
person (including without limitation any bank under any letter of credit)
to induce the creation of which the guaranteeing person has issued a
reimbursement, counterindemnity or similar obligation, in either case
guaranteeing or in effect guaranteeing any debts, leases, dividends or
other obligations (the "primary obligations") of any other third Person
(the "primary obligor") in any manner, whether directly or indirectly,
including without limitation any obligation of the guaranteeing person,
whether or not contingent, (i) to purchase any such primary obligation or
any property constituting direct or indirect security therefor, (ii) to
advance or supply funds (1) for the purchase or payment of any such
primary obligation or (2) to maintain working capital or equity capital
of the primary obligor or otherwise to maintain the net worth or solvency
of the
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primary obligor or (iii) to purchase property, securities or services
primarily for the purpose of assuring the owner of any such primary
obligation of the ability of the primary obligor to make payment of such
primary obligation; provided, however, that the term Guarantee Obligation
shall not include endorsements of instruments for deposit or collection
in the ordinary course of business.
"Indebtedness": of any Person at any date, (a) all indebtedness of
such Person for borrowed money or for the deferred purchase price of
property or services (other than current trade liabilities incurred in
the ordinary course of business and payable in accordance with customary
practices), (b) any other indebtedness of such Person which is evidenced
by a note, bond, debenture or similar instrument and (c) all obligations
of such Person under Financing Leases.
"Intellectual Property": any domestic or foreign trademarks, trade
names, brandmarks, brand names, copyrights, patents, applications pending
for patents, for trademarks or trade name registrations, and brandmarks
or brand name registrations or copyright registrations, technical
know-how and other proprietary rights.
"Knowledge of the Company": actual knowledge of any of the seven (7)
senior executives (collectively, the "Executives") of the Company, whose
names are listed in Schedule 1.1(a), including actual knowledge of facts
which should reasonably have placed such Executive on notice of the
matters in question.
"Knowledge of Fremont": actual knowledge of Robert Jaunich II, James
T. Farrell or Timothy H. Hosking, including actual knowledge of facts
which should reasonably have placed such person on notice of the matters
in question.
"Lien": any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), charge or other
security interest or any preference, priority or other security agreement
or preferential arrangement of any kind or nature whatsoever (including
without limitation any conditional sale or other title retention
agreement and any Financing Lease having substantially the same economic
effect as any of the foregoing).
"Material Adverse Effect": a material adverse effect on the
financial condition or results of operations of the Company and its
Subsidiaries taken as a whole.
"Materials of Environmental Concern": any waste, pollutant, or
contaminant regulated as such under any
5
Environmental Law, or any other substance of any kind (including without
limitation petroleum or petroleum products, asbestos or
asbestos-containing materials, ureaformaldehyde insulation,
polychlorinated biphenyls, odors and radioactivity) regulated by or
under, or which may otherwise give rise to liability under, any
Environmental Law.
"Per Share Interest Amount": shall be $0.0485 for each day following
June 7, 1996 that the Effective Time occurs.
"Permits": as to any Person, all licenses, permits, franchises,
orders, approvals, concessions, registrations, authorizations and
qualifications with and under all federal, state, local or foreign laws
and Governmental Authorities and all industry or other nongovernmental
self-regulatory organizations that are issued to such Person (including
without limitation Environmental Permits).
"Permitted Liens": with respect to the Common Stock, any Liens
imposed by, arising under or resulting from securities laws or any of
those certain agreements between the Company and its stockholders set
forth on Schedule 1.1(b).
"Person": an individual, partnership, corporation, limited liability
company, business trust, joint stock company, trust, unincorporated
association, joint venture, Governmental Authority or other entity of
whatever nature.
"Pre-Closing Tax Period": all taxable periods ending on or before
the Closing Date.
"Requirement of Law": as to any Person, the Certificate of
Incorporation and By-Laws or other organizational or governing documents
of such Person, and any law, treaty, rule or regulation or determination
of an arbitrator or a court or other Governmental Authority, in each case
applicable to or binding upon such Person or any of its property or to
which such Person or any of its property is subject.
"SEC": the Securities and Exchange Commission or its successor.
"Securities Act": the Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder, all as shall be
in effect from time to time.
"Subfranchisor": any Person to whom the Company or any Subsidiary
has granted the right to sell or grant a Target franchise to a third
party.
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"Subsidiaries": collectively, the subsidiaries of the Company set
forth on Schedule 4.2(d).
"Taxes": all United States federal, state, local and foreign income,
profits, franchise, gross receipts, payroll, sales, employment, use,
property, excise, value added, estimated, stamp, alternative or add-on
minimum, environmental, withholding and any other taxes, duties or
assessments, together with all interest, penalties and additions imposed
with respect to such amounts.
"Tax Authority" and "Taxing Authority": any domestic, foreign,
federal, national, state, provincial, county or municipal or other local
government or any other authority exercising Tax regulatory authority.
"Tax Return": any return, declaration, report, claim for refund or
information return or statement filed or required to be filed with any
Governmental Authority relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Tax Sharing Agreements": the Federal Income Tax Sharing Agreement,
dated as of October 5, 1993, between Fremont and the Company and the
California Franchise Tax Sharing Agreement, dated as of October 5, 1993,
between Fremont and the Company.
Section 1.2 Other Definitional Provisions. (a) The words
"hereof", "herein" and "hereunder" and words of similar import when used in
this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement, and Section, Schedule and Exhibit
references are to this Agreement unless otherwise specified.
(b) The meanings given to terms defined herein shall be
equally applicable to both the singular and plural forms of such terms.
ARTICLE II
THE MERGER
Section 2.1 The Merger. Upon the terms and subject to the conditions of
this Agreement and in accordance with the Delaware Statute, at the Effective
Time (as defined in Section 2.2), Sub shall be merged with and into the
Company. As a result of the Merger, the separate corporate existence of Sub
shall cease and the Company shall continue as the surviving corporation (the
"Surviving Corporation").
Section 2.2 Effective Time of the Merger. Subject to the provisions of
this Agreement, a certificate of merger (the "Certificate of Merger") shall be
duly prepared, executed and
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acknowledged by the Surviving Corporation and thereafter delivered to the
Secretary of State of the State of Delaware for filing, as provided in the
Delaware Statute, simultaneously with or as soon as practicable following the
Closing (as defined in Section 2.3). The Merger shall become effective upon
the filing of the Certificate of Merger with the Secretary of State of the
State of Delaware (the "Effective Time").
Section 2.3 Closing. Subject to the conditions set forth in Article VIII
hereof, unless this Agreement shall have been terminated pursuant to the
provisions of Section 9.1, the closing (the "Closing") of the Merger shall
take place at the offices of Simpson Thacher & Bartlett, 425 Lexington Avenue,
New York, New York 10017 on the second Business Day following the date on
which the conditions set forth in Article VIII shall have been satisfied or
waived, or at such other place and time as the parties may mutually agree. The
date and time of such Closing are herein referred to as the "Closing Date".
Section 2.4 Effects of the Merger. At the Effective Time: (a) the
separate existence of Sub shall cease and Sub shall be merged with and into
the Company as the Surviving Corporation and (b) the Merger shall have all of
the effects provided by the Delaware Statute. Without limiting the generality
of the foregoing, and subject thereto, at the Effective Time all of the
property, rights, privileges, immunities, powers and franchises of the Company
and Sub shall vest in the Surviving Corporation, and all debts, liabilities
and duties of the Company and Sub shall become the debts, liabilities and
duties of the Surviving Corporation.
Section 2.5 Articles of Incorporation; By-Laws. (a) The Certificate of
Incorporation of Sub as in effect immediately prior to the Effective Time
shall be the Certificate of Incorporation of the Surviving Corporation until
thereafter amended as provided by the Delaware Statute and such Certificate of
Incorporation.
(b) The Bylaws of Sub shall become the Bylaws of the Surviving
Corporation until amended as provided by the Delaware Statute and the
Certificate of Incorporation of the Surviving Corporation.
Section 2.6 Directors and Officers. The directors of Sub immediately
prior to the Effective Time shall be the initial directors of the Surviving
Corporation, each to hold office in accordance with the Certificate of
Incorporation and By-Laws of the Surviving Corporation, and the officers of
the Company immediately prior to the Effective Time shall be the initial
officers of the Surviving Corporation, in each case until their respective
successors are duly elected or appointed (as the case may be) and qualified.
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ARTICLE III
CONVERSION OF SHARES;
DISSENTING SHARES; PAYMENT
Section 3.1 Conversion of Shares. At the Effective Time, by virtue of the
Merger and without any action on the part of Sub, the Company or the holders
of any of the following securities:
(a) each share of Common Stock issued and outstanding immediately
prior to the Effective Time (other than any shares of Common Stock to be
cancelled pursuant to Section 3.1(b) and any Dissenting Shares (as
defined in Section 3.2)) shall be converted into the right to receive in
cash the sum of (i) $104.3204 and (ii) the Per Share Interest Amount, if
any (the "Merger Price"), payable to the holder thereof, without interest
thereon, upon the surrender of the certificate formerly representing such
share of Common Stock in the manner provided in Section 3.3.
Notwithstanding the preceding sentence, if the number of shares of Common
Stock outstanding on the Closing Date exceeds 5,749,155, then the Merger
Price shall be adjusted such that the aggregate consideration paid to the
record holders of shares of Common Stock pursuant to Section 3.1(a) and
the holders of options of Common Stock pursuant to Section 3.4 shall be
$640,000,000.
(b) each share of Common Stock held in the treasury of the Company
and each share of Common Stock owned by Parent, Sub or any other direct
or indirect subsidiary of Parent or of the Company, in each case
immediately prior to the Effective Time, shall be cancelled and retired
without any conversion thereof and no payment or distribution shall be
made with respect thereto.
(c) each share of common stock, par value $.01 per share, of Sub
issued and outstanding immediately prior to the Effective Time shall be
converted into and shall thereafter evidence one validly issued, fully
paid and nonassessable share of common stock, par value $.01 per share,
of the Surviving Corporation.
Section 3.2 Dissenting Shares. Notwithstanding anything in this Agreement
to the contrary, shares of Common Stock issued and outstanding immediately
prior to the Effective Time and which are held by holders of such shares who
have not voted in favor of the Merger or consented thereto in writing and who
have demanded appraisal rights with respect thereto in accordance with Section
262 of the Delaware Statute (the "Dissenting Shares") shall not be converted
into or be exchangeable for the right to receive the Merger Price, but holders
of such shares shall be entitled to receive payment of the appraised value of
such Dissenting Shares in accordance with
9
the provisions of such Section 262, except that any Dissenting Shares held by
a stockholder who shall thereafter withdraw such demand for appraisal of such
shares or lose the right to appraisal as provided in such Section 262 shall
thereupon be deemed to have been converted into and to have become
exchangeable for, at the Effective Time, the right to receive the Merger
Price, without any interest thereon. The Company shall give Parent (i) prompt
notice of any written demands for appraisal of any shares of Common Stock,
attempted withdrawals of such demands, and any other instruments served
pursuant to the Delaware Statute received by the Company relating to
stockholders' rights of appraisal and (ii) the opportunity to direct all
negotiations and proceedings with respect to any such demands for appraisal
under the Delaware Statute. The Company shall not, except with the prior
written consent of Parent, voluntarily make any payment with respect to any
demands for appraisals of capital stock of the Company, offer to settle or
settle any such demands or approve any withdrawal of any such demands.
Section 3.3 Exchange of Shares. (a) At the Closing, Parent shall deliver
to Chemical Bank, in trust for the benefit of the record holders of shares of
Common Stock and for the benefit of the holders of options of Common Stock for
exchange in accordance with this Section 3.3 and Section 3.4, (i) cash in
sufficient amount to pay (A) the aggregate consideration set forth in Section
3.1 hereof, less the aggregate amount to be deducted pursuant to Section
3.3(d), and (B) the aggregate consideration required to be paid by the Company
pursuant to Section 3.4 and (ii) irrevocable wire transfer instructions, in
form and substance satisfactory to Fremont, directing Chemical Bank to
transfer by wire transfer of immediately available funds (A) to each holder of
an Employee Option (as defined below), immediately prior to the Effective
Time, the amount opposite such holder's name set forth in Schedule 3.4 in
accordance with wire transfer instructions provided to Parent by each such
holder prior to the Closing and (B) to each record holder of shares of Common
Stock who has duly completed and validly executed a Merger Letter of
Transmittal (as defined below), immediately upon the Effective Time, the
amount opposite such record holder's name set forth in Schedule 3.3(a) in
accordance with the instructions set forth in such Merger Letter of
Transmittal.
(b) At or prior to the Closing, Parent or the Surviving Corporation shall
make available for execution by each record holder including Fremont, as of
the Effective Time, of an outstanding certificate or certificates which
immediately prior to the Effective Time represented shares of Common Stock
(the "Certificates") whose shares are to be converted into the right to
receive the Merger Price, a form of letter of transmittal substantially in the
form attached hereto as Exhibit B (a "Merger Letter of Transmittal") and
instructions for use in effecting the surrender of the Certificates in
exchange for the Merger Price. Upon surrender to the Surviving Corporation of
a Certificate,
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together with delivery of such Merger Letter of Transmittal duly completed and
validly executed in accordance with the instructions thereto, and any other
documents required by the Merger Letter of Transmittal, the holder of such
Certificate shall be entitled to receive in exchange therefor solely the
applicable consideration set forth in Section 3.1 less any amounts to be
deducted pursuant to Section 3.3(d) and such Certificate shall forthwith be
cancelled. No interest shall be paid or accrued for the benefit of holders of
the Certificates on the consideration payable upon the surrender of the
Certificates.
(c) At the Closing, Fremont shall deliver to Parent a Merger Letter of
Transmittal with respect to Certificates representing 5,235,650 shares of
Common Stock duly completed and validly executed in accordance with the
instructions to such Merger Letter of Transmittal, and any other documents
required by the Merger Letter of Transmittal.
(d) With respect to Certificates surrendered by any stockholder with
outstanding debt (whether principal or interest) to the Company at the time of
such surrender arising under a loan made by the Company on August 25, 1995, as
set forth on Schedule 3.3(d), the Company shall be entitled to deduct from the
aggregate Merger Price payable in connection with the surrender of such
Certificates the amount of such outstanding debt in exchange for the
extinguishment of such debt.
(e) From and after the Effective Time, there shall be no transfers on the
stock transfer books of the Surviving Corporation of shares of Common Stock
which were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates formerly representing shares of Common Stock
(other than Dissenting Shares (subject to applicable law)) are presented to
the Surviving Corporation, they shall be cancelled and exchanged for the
Merger Price as provided in this Article in accordance with the procedures set
forth in this Article, subject to applicable law in the case of Dissenting
Shares.
(f) Neither Parent, Sub nor the Surviving Corporation shall be liable to
any holder of shares of Common Stock for cash delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
(g) In the event any Certificates evidencing shares of Common Stock shall
have been lost, stolen or destroyed, the holder of such lost, stolen or
destroyed Certificate(s) shall execute an affidavit of that fact upon request.
The record holder of any such lost, stolen or destroyed Certificate(s) shall
also deliver a bond in such sum as Parent may reasonably require as indemnity
against any claim that may be made against Parent or the Surviving Corporation
with respect to the Certificate(s) alleged to have been lost, stolen or
destroyed. The affidavit and any bond which may be required hereunder shall be
delivered
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to the Surviving Corporation, who shall be responsible for making payment for
such lost, stolen or destroyed Certificate(s).
(h) Fremont shall indemnify and hold Parent and the Surviving Corporation
harmless for any and all losses incurred by either of them as a result of more
than 5,749,155 shares of Common Stock being delivered to the Surviving
Corporation for conversion into cash.
Section 3.4 Treatment of Employee Options. Immediately prior to the
Effective Time, each outstanding employee stock option to purchase shares of
Common Stock (an "Employee Option") set forth on Schedule 3.4, whether or not
then exercisable, shall be cancelled by the Company in exchange for the right
to receive from the Company immediately prior to the Effective Time, an amount
in cash equal to the product of (i) the number of shares of Common Stock
previously subject to such Employee Option and (ii) the excess, if any, of the
Merger Price over the exercise price per share of Common Stock previously
subject to such Employee Option, less any required withholding taxes.
Section 3.5 Escrow Deposits. (a) On the date hereof, Parent shall deliver
to Chemical Bank, as escrow agent (the "Escrow Agent"), an amount of cash, in
immediately available funds, equal to $50,000,000 (the "Fund"). Any interest
or earnings that accrue on the Fund on or before June 14, 1996 shall be
segregated from and not form part of the Fund and not be subject to any claim
by the Company or its stockholders, but any such interest or earnings that
accrue after June 14, 1996 shall be included in and form part of the Fund. The
Fund shall be governed by the terms and conditions of this Agreement and the
terms and conditions of the Escrow Agreement.
(b) Unless this Agreement shall have been terminated pursuant to the
provisions of Section 9.1, in which case the Fund shall be delivered to Parent
or the Company and its stockholders as set forth in Section 9.2(b) or (c), the
Fund will be delivered to Parent promptly following the Effective Time. At the
Effective Time, Parent shall have the option to direct the Escrow Agent to
deliver the Fund to Chemical Bank, in trust for the benefit of the record
holders of shares of Common Stock and for the benefit of the holders of
options of Common Stock, as provided in Section 3.3.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF FREMONT AND THE COMPANY
Section 4.1 Representations and Warranties of Fremont. Fremont represents
and warrants to Parent and Sub as follows:
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(a) Organization and Capacity. Fremont is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization and has all requisite power, authority and capacity to enter into
this Agreement and to perform its obligations hereunder.
(b) Authorization and Validity. The execution, delivery and performance
by Fremont of its obligations under this Agreement and the performance by it
of the transactions contemplated hereby have been duly authorized and no
further action on the part of Fremont is necessary for the execution, delivery
and performance by it of this Agreement and the consummation by it of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by Fremont and, assuming due authorization, execution and delivery
by Parent, Sub and the Company, this Agreement constitutes the legally valid
and binding obligation of Fremont, enforceable against it in accordance with
its terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to or affecting
creditors' rights generally, by general equitable principles (regardless of
whether such enforceability is considered in a proceeding in equity or at law)
or by an implied covenant of good faith and fair dealing.
(c) Good Title. Fremont owns beneficially and of record 5,235,650 shares
of Common Stock, free and clear of all Liens other than Permitted Liens.
Fremont has full authority to surrender the certificates representing such
shares of Common Stock free and clear of all Liens.
(d) No Conflict. (i) Neither the execution, delivery or performance by
Fremont of this Agreement nor the consummation of the transactions
contemplated hereby and compliance by Fremont with any of the provisions
hereof will (a) require any consent, approval or notice under, violate or
result in the violation of, conflict with or result in a breach of any
provisions of, constitute a default (or an event which, with notice or lapse
of time or both, would constitute a default) under, result in the termination
of, accelerate the performance required by or result in a right of termination
or acceleration, result in the loss of a material benefit under or result in
the creation of any Lien upon any of the properties or assets of the Company
or the Subsidiaries or Fremont's Common Stock under any of the terms,
conditions or provisions of (i) its organizational or governing documents or
(ii) any Contractual Obligation of Fremont, except for such violations,
conflicts, breaches or defaults which would not, individually or in the
aggregate with all other such violations, conflicts, breaches and defaults,
have a material adverse effect on Fremont's ability to consummate the
transactions contemplated by this Agreement or (b) subject to compliance with
the statutes and regulations referred to in Section 4.1(e) hereof applicable
to Fremont, violate, or result in the violation of, any Requirement of Law,
except for such violations which would not, individually or in the aggregate
with
13
all other such violations, have a material adverse effect on Fremont's ability
to consummate the transactions contemplated by this Agreement.
(e) Governmental Consents. Except for filings by Fremont under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), no consent, order or authorization of, or registration, declaration or
filing with, any Governmental Authority is required in connection with the
execution, delivery and performance of this Agreement or the consummation of
the transactions contemplated hereby by Fremont, except for (a) such consents,
approvals, orders, authorizations, registrations, declarations and filings as
may be required under applicable state securities laws and (b) such other
consents, authorizations, filings, approvals and registrations which, if not
obtained or made, would not individually or in the aggregate have a material
adverse effect on Fremont's ability to consummate the transactions
contemplated by this Agreement.
(f) Brokers, Finders, etc. Fremont has not employed, nor is it subject to
the valid claim of any broker, finder or other financial intermediary in
connection with the transactions contemplated by this Agreement who might be
entitled to a fee or commission.
Section 4.2 Representations and Warranties of the Company. The Company
represents and warrants to Parent and Sub as follows:
(a) Organization and Capacity. Each of the Company and its Subsidiaries
is duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation. Each of the Company and its Subsidiaries is
(i) duly qualified to transact business as a foreign corporation and in good
standing under the laws of each jurisdiction where its ownership, lease or
operation of property or the conduct of its business requires such
qualification and (ii) in compliance with all Requirements of Law, except to
the extent that the failure to be in good standing, to qualify as a foreign
corporation or to comply with such requirements would not, individually or in
the aggregate with all such other failures, have a Material Adverse Effect.
Each of the Company and its Subsidiaries has the corporate power and authority
and the legal right to own and operate its property, to lease the property it
operates as lessee and to conduct the business in which it is engaged, except
to the extent the failure to have such power, authority or legal right would
not, individually or in the aggregate with all such other failures, have a
Material Adverse Effect. The Company has all requisite corporate power and
authority to enter into and deliver this Agreement and to perform its
obligations hereunder. Complete and correct copies of the certificate of
incorporation and by-laws of the Company, as amended to date, have been
delivered to Parent.
14
(b) Authorization and Validity. The execution, delivery and performance
by the Company of this Agreement and the performance by it of the transactions
contemplated hereby have been duly authorized by the Board of Directors and
the stockholders of the Company, and no other corporate action on the part of
the Company is necessary for the execution, delivery and performance by it of
this Agreement and the consummation by it of the transactions contemplated
hereby. This Agreement has been duly executed and delivered by the Company
and, assuming due authorization, execution and delivery by Parent, Sub and
Fremont, this Agreement constitutes the legally valid and binding obligation
of the Company, enforceable against it in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws relating to or affecting creditors' rights
generally, by general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law) or by an
implied covenant of good faith and fair dealing.
(c) Capitalization. The entire authorized capital stock of the Company
consists of 10,000,000 shares of Common Stock, 5,749,155 shares of which are
issued and outstanding and 1,000,000 shares of preferred stock, par value $.01
per share, none of which is issued and outstanding. All of such issued and
outstanding shares of Common Stock are validly issued, fully paid and
nonassessable, have not been issued in violation of any preemptive or similar
rights, and are owned of beneficially and of record free and clear of any
Liens other than Permitted Liens. Other than as set forth on Schedule 4.2(c),
there are no outstanding options, warrants, calls, rights, commitments or
agreements of any kind to which the Company is party or by which it is bound
relating to the sale, issuance or voting of, or the granting of rights to
acquire, any shares of the capital stock of any class or series of, or other
equity interests in, the Company or any securities convertible or exchangeable
into or evidencing the right to purchase any shares of capital stock of any
class or series of, or other equity interests in, the Company or obligating
the Company to grant, extend or enter into any such option, warrant, call,
right, commitment or agreement. All such outstanding options, warrants, calls,
rights, commitments or agreements have been validly issued and are validly
outstanding. All capital stock of the Company into or for which any such
outstanding options, warrants, calls, rights, commitments or agreements are
convertible or exercisable, upon conversion or exercise in accordance with
their terms, will be validly issued, fully paid and nonassessable. Other than
as set forth on Schedule 4.2(c), there is no outstanding Indebtedness of the
Company and its Subsidiaries. No Indebtedness of the Company or its
Subsidiaries contains any restriction (other than restrictions with respect to
the giving of notice and the payment of any related breakage costs in the
event of prepayment) upon (i) the prepayment of such Indebtedness, (ii) other
than as set forth on Schedule 4.2(c), the incurrence of Indebtedness by the
Company or any of its Subsidiaries or (iii) other than as set
15
forth on Schedule 4.2(c), restricts the ability of the Company or any of its
Subsidiaries to grant any Liens on its properties or assets, other than
restrictions that would not have a material adverse effect on the Company's
ability to refinance such Indebtedness.
(d) Subsidiaries. Except as set forth on Schedule 4.2(d), there is no
corporation, partnership, joint venture or other entity in which the Company
directly or indirectly owns any equity or other ownership interest. Set forth
on Schedule 4.2(d) is the number of authorized, issued and outstanding shares
of each Subsidiary and its jurisdiction of incorporation. All the outstanding
shares of capital stock of each Subsidiary are validly issued, fully paid and
nonassessable, have not been issued in violation of any preemptive or similar
rights and, except as set forth on Schedule 4.2(d), are owned beneficially,
directly or indirectly, by the Company free and clear of any Liens. Except as
set forth on Schedule 4.2(d), there are no outstanding options, warrants,
calls, rights or commitments or any other agreements of any character relating
to the sale, issuance or voting of, or the granting of rights to acquire, any
shares of the capital stock of any Subsidiary, or any securities or other
instruments convertible into, exchangeable for or evidencing the right to
purchase any shares of capital stock of any Subsidiary.
(e) Financial Statements. Schedule 4.2(e) contains a copy of the audited
consolidated balance sheets of the Company and its Subsidiaries as of December
31, 1995, December 31, 1994 and December 31, 1993 and the related audited
consolidated statements of operations, statements of shareholders' equity and
cash flows of the Company and its Subsidiaries for the fiscal years ended on
each such date, accompanied by the reports thereon of Deloitte & Touche LLP,
in the case of the December 31, 1993 financial statements, and of Coopers &
Lybrand, in the case of the December 31, 1994 and 1995 financial statements
(all such financial statements, including the notes thereto, referred to
herein as the "Annual Financial Statements"). The Annual Financial Statements
have been prepared in accordance with GAAP consistently applied during the
periods involved, except as otherwise disclosed in the notes to such financial
statements, and present fairly the consolidated financial condition of the
Company and its Subsidiaries as of such dates and the consolidated results of
their operations and their consolidated cash flows for the fiscal years then
ended. The unaudited consolidated balance sheet of the Company as of March 31,
1996 and the related unaudited consolidated statements of operations,
statements of shareholders' equity and cash flows of the Company and its
Subsidiaries for the three-month period ended on such date are also contained
in Schedule 4.2(e) (all such financial statements, including the notes
thereto, referred to herein as the "Interim Financial Statements"). The
Interim Financial Statements present fairly the consolidated financial
condition of the Company and its Subsidiaries as of such dates and the
16
consolidated results of their operations and their consolidated cash flows for
the three-month period then ended (subject to normal year-end audit
adjustments). There is no liability or obligation of any kind required to be
disclosed under GAAP, whether accrued, absolute, fixed or contingent, of the
Company and its Subsidiaries that is not disclosed, reflected or reserved
against in the Interim Financial Statements, except such liabilities or
obligations (i) incurred in the ordinary course of business, consistent with
past practice, since March 31, 1996 or (ii) which would not individually or in
the aggregate have a Material Adverse Effect. Except as set forth on Schedule
4.2(e), neither the Company nor any of its Subsidiaries has any obligation to
make any "earn out" or similar payments.
(f) Absence of Certain Changes. Except as set forth on Schedule 4.2(f),
from December 31, 1995 until the date hereof, (i) no event has occurred which,
had it occurred subsequent to the date of this Agreement, would have required
the consent or approval of Parent under Section 6.3 hereof and (ii) there has
not been any event which individually or in the aggregate with all other
events has had or would reasonably be expected to have a Material Adverse
Effect.
(g) Legal Proceedings. Schedule 4.2(g) describes as of the date hereof
all litigation, investigations and proceedings of or before any arbitrator or
Governmental Authority formally commenced, pending or, to the Knowledge of the
Company, threatened by or against the Company or any of the Subsidiaries or
against any of its or their respective properties or revenues that the Company
believes would subject the Company or the Subsidiaries to liabilities in
excess of $50,000 (not including legal fees and costs). Except as described on
Schedule 4.2(g), to the Knowledge of the Company there is as of the date
hereof no litigation, investigation or proceeding which, if adversely decided,
would individually or in the aggregate have a Material Adverse Effect.
Schedule 4.2(g) sets forth as of the date hereof a brief description of each
judgment, injunction, decree, order or other determination of an arbitrator or
a court or other Governmental Authority applicable to the Company or any of
the Subsidiaries or any of its or their respective properties which has either
been entered since January 1, 1994 in excess of $50,000 or remains currently
in effect, and no such judgment, injunctive decree, order or other
determination can reasonably be expected, individually or in the aggregate, to
have a Material Adverse Effect. None of the Company or its Subsidiaries is in
violation of any judgment, decree, injunction or order outstanding against it
which violation would, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. As of the date hereof, no suit,
action or governmental proceeding before any court or any governmental or
regulatory authority has been commenced and is pending or, to the Knowledge of
the Company, threatened by any federal or state Governmental Authority against
the Company or any of its Subsidiaries or Affiliates, associates, officers,
directors or partners seeking
17
to restrain, prevent or change in any respect the transactions contemplated
hereby or seeking damages in connection with any of such transactions.
(h) Compliance with Laws. (i) Each of the Company and each Subsidiary is
in compliance with all Requirements of Law, including without limitation the
FTC Act, the Real Estate Settlement Procedures Act and all applicable state
and foreign franchise laws, holds all Permits that are material to the conduct
of its business or the ownership of its properties, and is in material
compliance with each such Permit, except where such failure to comply with any
such Requirements of Law, to hold any such Permits or to comply with any such
Permits would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect.
(ii) The sale by the Company or by any Subsidiary of any franchise to any
Subfranchisor or to any Franchisee was made in compliance with all
Requirements of Law, including without limitation the FTC Act, if applicable,
and all applicable state and foreign franchise laws, except where such failure
to comply with any such Requirements of Law would not reasonably be expected
to have, individually or in the aggregate, a Material Adverse Effect.
(iii) Except as disclosed on Schedule 4.2(h), since January 1, 1994,
neither the Company nor any Subsidiary has received any notice from any
Governmental Authority asserting that the Company or any Subsidiary is not in
compliance with any Requirement of Law or any Permit, except where such
failure to comply with any such Requirements of Law would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect.
(i) Material Contracts. Schedule 4.2(i) lists, as of the date hereof,
each of the following contracts and other agreements to which the Company or
any Subsidiary is a party or by or to which the Company or any Subsidiary or
any of their respective assets or properties is bound or subject (each such
contract or agreement, a "Material Contract"):
(i) agreements between the Company or any Subsidiary and a
Subfranchisor;
(ii) the standard form of Coldwell Banker franchise agreement
currently in effect;
(iii) agreements between the Company, any Subsidiary or any
Subfranchisor, on the one hand, and a Franchisee, on the other hand,
which contain franchise royalty payment rates materially different from
those contained in the standard form of Coldwell Banker franchise
agreements;
18
(iv) agreements that limit or purport to limit the ability of the
Company or any Subsidiary to compete in any line of business or with any
Person or in any geographical area or during any period of time, other
than franchise agreements granting exclusive territorial rights to the
extent individually not material to Coldwell Banker Residential
Affiliates, Inc.;
(v) agreements relating to the incurrence of material Indebtedness
by the Company or any Subsidiary or restricting the ability of the
Company or any Subsidiary to incur Indebtedness;
(vi) agreements relating to any material Guarantee Obligations of
the Company or any Subsidiary;
(vii) agreements relating to the making of any loan or advance by
the Company or any Subsidiary;
(viii) agreements providing for the indemnification by the Company
or any Subsidiary of any Person;
(ix) agreements with any Governmental Authority; and
(x) all other agreements whether or not made in the ordinary course
of business which are material to the business, operations, property,
financial condition or results of operations of the Company and its
Subsidiaries taken as a whole or the absence of which could have a
Material Adverse Effect or the presence of which does not or is not
reasonably expected to have a Material Adverse Effect.
Promptly following the execution hereof, there will be delivered or made
available to Parent true and complete copies of all of the written agreements
listed on Schedule 4.2(i) and a written summary of all of the oral agreements
listed on Schedule 4.2(i). As of the date hereof, each Material Contract is in
full force and effect and constitutes a legal, valid and binding obligation of
the Company or the Subsidiary, as the case may be, and, to the Knowledge of
the Company, of each other party thereto, enforceable in accordance with its
terms, subject to the effects of bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws relating to or
affecting creditors' rights generally and general equitable principles
(whether considered in a proceeding in equity or at law). As of the date
hereof, none of the Company or any Subsidiary has received any written notice
that any Material Contract is not enforceable against any party thereto, and
none of the Company or any Subsidiary has received any notice of termination
or intention to terminate from any other party to any Material Contract. As of
the date hereof, none of the Company nor any Subsidiary or (to the Knowledge
of the Company) any other party to any Material Contract is in breach of or
default under any
19
such agreement (or, to the Knowledge of the Company, with or without notice or
lapse of time or both, would be in breach of or default under any such
agreement), except breaches or defaults which have not had or would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect.
(j) Certain Agreements. Except as set forth on Schedule 4.2(j) or
permitted by Section 6.3, the Company is not a party to any (i) agreement with
any of its executive officers or other employees (A) any benefits of which are
contingent, or the terms of which are materially altered, upon the occurrence
of a transaction of the nature contemplated by this Agreement, (B) with
respect to executive officers or other employees which will not be terminable
without any liability to the Company by the Company on 30 days' or less
notice, or (C) providing severance benefits or other benefits which are
conditioned upon a change of control after the termination of employment of
such employee regardless of the reason for such termination of employment, or
(ii) agreement or plan, including without limitation any stock option plan,
stock appreciation right plan or stock purchase plan, any of the benefits of
which will be materially increased, or the vesting of benefits of which will
be materially accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which
will be calculated on the basis of any of the transactions contemplated by
this Agreement.
(k) Properties. Except as set forth on Schedule 4.2(k), as of the date
hereof, the Company and its Subsidiaries have good and marketable title to all
of their respective real properties in fee simple absolute (except for
leasehold interests, in which event the entity directly holding such interest
has a valid leasehold interest) and have marketable title to all of their
respective other properties and assets (except for leased properties and
assets, in which case the lessee has a valid leasehold interest) (including
without limitation the Intellectual Property), in each case free and clear of
all Liens except for (i) defects in title or Liens which, individually or in
the aggregate, would not reasonably be expected to have a Material Adverse
Effect, or (ii) statutory or other similar Liens securing payments not yet
due. As of the date hereof, each such lease is valid without default
thereunder by the lessee or, to the Knowledge of Company, the lessor, except
for such defaults which, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect. To the Knowledge of
Company, there is, as of the date hereof, no defect in the normal operating
condition and repair of the equipment owned or leased by the Company and the
Subsidiaries, except for such defects which, individually or in the aggregate,
would not reasonably be expected to have a Material Adverse Effect. To the
Knowledge of the Company and except as set forth on Schedule 4.2(k), as of the
date hereof, the Company and its Subsidiaries maintain insurance in such
amounts and of such character as is usually maintained by companies engaged in
the
20
same or similar businesses, and the insurance policies of the Company and its
Subsidiaries are in full force and effect, all material premiums due thereon
have been paid and the Company and its Subsidiaries have complied in all
material respects with the provisions of such policies.
(l) Intellectual Property. Schedule 4.2(l) sets forth all trademarks
relating to the business of the Company and the Subsidiaries owned and/or used
by the Company and the Subsidiaries, and such Schedule indicates whether each
of the foregoing are owned or licensed by the Company or any Subsidiary.
Except as set forth on Schedule 4.2(l), the Company and each of the
Subsidiaries owns, or is licensed to use, all Intellectual Property used by
the Company and the Subsidiaries, subject to no material restrictions. Except
for such claims which, individually or in the aggregate, would not reasonably
be expected to have a Material Adverse Effect, no claim has been asserted and
is pending by any Person challenging or questioning the ownership or use by
the Company of any such Intellectual Property, nor, to the Knowledge of the
Company, does there exist any valid basis for any such claim. The use of such
Intellectual Property by the Company and the Subsidiaries does not infringe on
the rights of any Person, and, to the Knowledge of the Company, there is no
infringing use of any of such Intellectual Property by any other Person,
except for such uses which, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect.
(m) Employee Benefits. (i) Schedule 4.2(m) contains a true and complete
list of each "employee benefit plan" (within the meaning of Section 3(3) of
ERISA (including without limitation multiemployer plans within the meaning of
ERISA Section 3(37)), stock purchase, stock option, severance, employment,
change-in-control, fringe benefit, collective bargaining, bonus, incentive,
deferred compensation and all other employee benefit plans, agreements,
programs, policies or other arrangements, whether or not subject to ERISA
(including any funding mechanism therefor now in effect or required in the
future as a result of the transaction contemplated by this Agreement or
otherwise), whether formal or informal, oral or written, legally binding or
not under which any employee or former employee of the Company or any
Subsidiary has any present or future right to benefits or under which the
Company or any Subsidiary has any present or future liability. All such plans,
agreements, programs, policies and arrangements shall be collectively referred
to as the "Company Plans". Schedule 4.2(m) also contains a true and complete
description of all severance plans of the Company or any Subsidiary.
(ii) With respect to each Company Plan, the Company has delivered or made
available to Parent a current, accurate and complete copy (or, to the extent
no such copy exists, an accurate description) thereof and, to the extent
applicable, (A) any related trust agreement, annuity contract or other funding
21
instrument; (B) the most recent determination letter; (C) any summary plan
description and other written communications (or description of any oral
communication) by the Company or any Subsidiary which modify in any
significant respect the benefits provided under the terms of any Company Plan
in a manner not reflected in any of the documents described in this subsection
(ii); and (D) for the three most recent years (I) the Form 5500 and attached
schedules; (II) audited financial statements; and (III) actuarial valuation
reports.
(iii) (A) Each Company Plan has been established and administered
substantially in accordance with its terms and in compliance in all material
respects with the applicable provisions of ERISA, the Code and other
applicable laws, rules and regulations; (B) each Company Plan which is
intended to be qualified within the meaning of Code Section 401(a) is so
qualified and has received a favorable determination letter as to its
qualification or application has been made to the Internal Revenue Service for
the issuance of such letter and nothing has occurred, whether by action or
failure to act, which would cause the loss of such qualification or would
prevent such letter from being issued; (C) except as described on Schedule
4.2(m), with respect to any Company Plan, no actions, suits or claims (other
than routine claims for benefits in the ordinary course) are pending or, to
the Knowledge of the Company, threatened and no facts or circumstances exist
which would give rise to any such actions, suits or claims and the Company
will promptly notify Parent in writing of any pending or threatened claims
arising between the date hereof and the Closing Date; (D) none of the Company,
any Subsidiary or any fiduciary of a Company Plan has engaged in a prohibited
transaction, as such term is defined under Code Section 4975 or ERISA Section
406, which would subject the Company, any Subsidiary or Parent to any taxes,
penalties or other liabilities under Code Section 4975 or ERISA Sections 409
or 502(i); (E) no event has occurred and no condition exists that would
subject the Company or any Subsidiary, either directly or by reason of its
affiliation with any member of its Controlled Group (defined as any
organization which is a member of a controlled group of organizations within
the meaning of Code Sections 414(b), (c), (m) or (o)), to any material tax,
fine or penalty imposed by ERISA, the Code or other applicable laws, rules and
regulations; (F) all insurance premiums required to be paid with respect to
Company Plans as of the Closing Date have been or will be paid prior thereto
and adequate reserves have been provided for on the Company's balance sheet
for any premiums (or portions thereof) attributable to service on or prior to
the Closing Date; (G) for each Company Plan with respect to which a Form 5500
has been filed, no material change has occurred with respect to the matters
covered by the most recent Form since the date thereof; (H) all contributions
required to be made prior to the Closing Date under the terms of any Company
Plan, the Code, ERISA or other applicable laws, rules and regulations have
been or will be timely made and adequate reserves have been provided for on
the Company's balance sheet for all benefits attributable
22
to service on or prior to the Closing Date; (I) except as set forth on
Schedule 4.2(m), no Company Plan provides for an increase in benefits on or
after the Closing Date; and (J) except as set forth on Schedule 4.2(m) or as
provided by applicable law, each Company Plan may be amended or terminated
without obligation or liability (other than those obligations and liabilities
for which specific assets have been set aside in a trust or other funding
vehicle or reserved for on the Company's balance sheet).
(iv) No Company Plan is a multiemployer plan within the meaning of
Section 4001(a)(3) of ERISA or is an "employee pension plan" within the
meaning of Section 3(2) of ERISA subject to Title IV of ERISA.
(v) (A) No Company Plan has incurred any "accumulated funding deficiency"
as such term is defined in ERISA Section 302 and Code Section 412 (whether or
not waived); (B) no event or condition exists which could be deemed a
reportable event within the meaning of ERISA Section 4043 which could result
in a liability to the Company or any member of its Controlled Group and no
condition exists which could subject the Company or any member of its
Controlled Group to a fine under ERISA Section 4071; (c) as of the Closing
Date, the Company and each member of its Controlled Group have made all
required premium payments when due to the PBGC; (D) neither the Company nor
any member of its Controlled Group is subject to any liability to the PBGC for
any plan termination occurring on or prior to the Closing Date; (E) no
amendment has occurred which has required or could require the Company or any
member of its Controlled Group to provide security pursuant to Code Section
401(a)(29) and (F) neither the Company nor any member of its Controlled Group
has engaged in a transaction which could subject it to liability under ERISA
Section 4069.
(vi) Except as described in Schedule 4.2(m), no Company Plan exists which
could result in the payment to any employee of the Company or any Subsidiary
of any money or other property or rights or accelerate or provide any other
rights or benefits to any such employee as a result of the execution and
delivery of this Agreement or the consummation of the Merger, whether or not
such payment would constitute a parachute payment within the meaning of Code
section 280G.
(n) Taxes. For purposes of this Section 4.2(n), any reference to the
Company or the Subsidiaries shall include any corporation that merged or was
liquidated with and into the Company or the Subsidiaries. Except as disclosed
in Schedule 4.2(n):
(i) All material Tax Returns required to be filed by or with respect
to the Company and the Subsidiaries have been timely filed, and all such
Tax Returns are complete and correct in all material respects. The
Company and the Subsidiaries have timely paid all material Taxes that are
23
due, or that have been asserted in writing by any taxing authority to be
due, from or with respect to it for the periods ending prior to the date
hereof.
(ii) The statute of limitations with respect to the Tax Returns of
the Company and the Subsidiaries and of each affiliated group (within the
meaning of the Code) of which the Company and any Subsidiaries are or
have been a member for all periods through the respective years specified
in Schedule 4.2(n) has expired. There are no outstanding agreements,
waivers or arrangements extending the statutory period of limitation
applicable to any claim for, or the period for the collection or
assessment of, Taxes due from or with respect to the Company or any
Subsidiaries for any taxable period, and no power of attorney granted by
or with respect to the Company or any Subsidiaries relating to Taxes is
currently in force. No closing agreement pursuant to section 7121 of the
Code (or any predecessor provision) or any similar provision of any
state, local, or foreign law has been entered into by or with respect to
the Company or any Subsidiaries that could affect the future liability
for Taxes of the Company or any Subsidiary.
(iii) No audit or other proceeding by any Governmental Authority has
formally commenced and no specific notification has been given to the
Company or any Subsidiary that such an audit or other proceeding is
pending or threatened with respect to any Taxes due from or with respect
to the Company or any Subsidiaries or any Tax Return filed by or with
respect to the Company or any Subsidiaries. No assessment of Tax has been
proposed in writing against the Company or any Subsidiaries or any of
their assets or properties.
(iv) No consent to the application of section 341(f)(2) of the Code
(or any predecessor provision) has been made or filed by or with respect
to the Company or any Subsidiaries or any of their assets or properties.
(v) As of the Closing, neither the Company nor any of the
Subsidiaries shall be a party to, be bound by or have any obligation
under, any Tax sharing agreement or similar contract or arrangement.
(vi) There is no contract or agreement, plan or arrangement by the
Company or any Subsidiaries covering any person that, individually or
collectively, could give rise to the payment of any amount that would not
be deductible by the Company or the Subsidiaries by reason of section
280G of the Code, as now in effect.
(vii) Fremont is not a "foreign person" within the meaning of
section 1445(b)(2) of the Code.
24
(o) Environmental Laws. Except as set forth on Schedule 4.2(o) and
excluding any residential property held by Coldwell Banker Relocation
Services, Inc. ("Relocation") in the ordinary course of business and assets
disposed of in the ordinary course of business and consistent with past
practice, to the Knowledge of the Company, (i) each of the Company and each
Subsidiary complies and has complied with all Environmental Laws applicable to
the properties, assets or businesses of the Company and the Subsidiaries, and
possesses and complies with and has possessed and complied with all
Environmental Permits required under such laws except where any noncompliance
or failure to possess any Environmental Permit has not had or could not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect; (ii) there are no past or present events, conditions,
circumstances, practices, plans or legal requirements that could reasonably be
expected to result in material liability to the Company or its Subsidiaries
under applicable Environmental Laws, prevent, or reasonably be expected to
materially increase the burden on the Company or any Subsidiary of, complying
with applicable Environmental Laws or of obtaining, renewing, or complying
with all Environmental Permits required under such laws; (iii) there are and
have been no Materials of Environmental Concern or other conditions at or from
any property owned, operated or otherwise used by the Company or any
Subsidiary now or in the past that could reasonably be expected to give rise
to liability of the Company or any Subsidiary under any Environmental Law,
except for such liabilities which, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect. Schedule 4.2(o) sets
forth a list of underground storage tanks that to the Knowledge of the Company
exist at properties currently owned, operated or leased by the Company or any
Subsidiary and that to the Knowledge of the Company are subject to regulation
under the federal Resource Conservation and Recovery Act, or any equivalent
state law. The Company will provide to Parent promptly upon execution hereof
true and complete copies of all material Environmental Reports in its
possession or control that it has received since January 1, 1994. With respect
to the residential properties held by Relocation, there are no past or present
events or conditions that could reasonably be expected to result in a
liability to the Company or its Subsidiaries under applicable Environmental
Laws, except for such liabilities (i) for which the Company or its
Subsidiaries are indemnified by the customers of Relocation or (ii) which
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect.
(p) Affiliate Transactions. Schedule 4.2(p) contains a summary as of the
date hereof of all transactions (including without limitation the provision of
any services or the sale of any goods) since January 1, 1994 between the
Company, any Subsidiary, any Subfranchisor or any Franchisee, on the one hand,
and Fremont or any of its Affiliates (other than the Company and the
Subsidiaries) on the other hand, other than transactions
25
entered into in the ordinary course of the Company's business on an arm's
length basis and employment agreements or arrangements and employee benefit
plans. Schedule 4.2(p) contains a summary as of the date hereof of all
transactions (including without limitation the provision of any services or
the sale of any goods) since January 1, 1994 between the Company, any
Subsidiary, any Subfranchisor or any Franchisee, on the one hand, and Bechtel
Group, Inc. and Bechtel Enterprises, Inc., and any Person controlled by either
or both of Bechtel Group, Inc. or Bechtel Enterprises, Inc., on the other
hand, other than transactions entered into in the ordinary course of the
Company's business on an arm's length basis. Schedule 4.2(p) also contains a
summary as of the date hereof of all transactions since January 1, 1994
between the Company or any Subsidiary, on the one hand, and any current or
former director or officer of the Company or any Subsidiary, or any entity in
which any such director or officer has a direct or indirect material interest,
other than employment agreements or arrangements and employee benefit plans
and transactions entered into in the ordinary course of the Company's business
on an arm's length basis. The agreements and arrangements set forth on
Schedule 4.2(p) are hereinafter referred to as "Affiliate Transactions".
(q) Franchisees. As of March 31, 1996, there were 1,297 Franchisees,
excluding those in Canada. Except as set forth on Schedule 4.2(q) as of the
date hereof, none of the Company or any Subsidiary or (to the Knowledge of the
Company) any Franchisee is in material breach of or default under any such
agreement (or to the Knowledge of the Company with or without notice or lapse
of time or both, would be in breach of or default under any such agreement).
Except as described on Schedule 4.2(q), there is as of the date hereof no
material dispute between the Company or any Subsidiary, on the one hand, and
any Subfranchisor or Franchisee, on the other hand. Neither the Company nor
any Subsidiary has knowledge that any Subfranchisor or any Franchisee is
failing to comply with its respective Requirements of Law as of the date
hereof, except for failures which would not in the aggregate have a Material
Adverse Effect. Attached on Schedule 4.2(q) are, as of the date hereof, all of
the provisions of any agreement or arrangement regarding the Company's option
to purchase any Subfranchisor's rights under any agreement or arrangement
between the Company and any Subfranchisor, and there are, as of the date
hereof, no other agreements or arrangements, whether written or oral, relating
to such repurchase rights.
(r) Offering Circulars. The Company will deliver promptly upon the
execution hereof to Parent a true and complete copy of the current uniform
franchise offering circular and other disclosure statements of the Company or
of any Subsidiary in connection with its sale of franchises to Subfranchisors
and/or Franchisees (the "Offering Circulars"). As of their respective dates,
such documents complied in all respects with the requirements of the FTC Act,
to the extent applicable, and with
26
applicable state and foreign laws, except for such requirements and laws the
failure to comply with which would, individually or in the aggregate, not
reasonably be expected to have a Material Adverse Effect.
(s) Brokers, Finders, etc. The Company has not employed, nor is it
subject to the valid claim of any broker, finder or other financial
intermediary in connection with the transactions contemplated by this
Agreement who might be entitled to a fee or commission.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub, jointly and severally, represent and warrant to each of
the Company and Fremont as follows:
Section 5.1 Due Organization and Power of Parent and Sub. Each of Parent
and Sub is duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation and has all requisite corporate
power and authority to enter into and deliver this Agreement and perform its
obligations hereunder.
Section 5.2 Authorization and Validity of Agreement. The execution,
delivery and performance by Parent and Sub of this Agreement and the
performance by them of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Parent and Sub,
and no other corporate action on the part of Parent or Sub is necessary for
the execution, delivery and performance by Parent or Sub of this Agreement and
the consummation by them of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by Parent and Sub and, assuming
due authorization, execution and delivery by the Company and Fremont, this
Agreement constitutes the legally valid and binding obligations of Parent and
Sub, enforceable against them in accordance with its respective terms, except
as enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws affecting creditors' rights generally, by
general equitable principles (regardless of whether such enforceability is
considered a proceeding in equity or at law) or by an implied covenant of good
faith and fair dealing.
Section 5.3 No Conflict. Neither the execution, delivery or performance
by Parent and Sub of this Agreement nor the consummation by them of the
transactions contemplated hereby and compliance by Parent and Sub with any of
the provisions hereof will (a) subject to compliance with the statutes and
regulations referred to in Section 5.4 hereof, violate, or result in the
violation of, any Requirement of Law; (b) violate, conflict with or result in
a breach of any provisions of, or
27
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination or
acceleration under any of the provisions of any organizational or governing
documents or Contractual Obligations of Parent or Sub.
Section 5.4 Governmental Consents. Except for filings under the HSR Act
and the filing of the Certificate of Merger with the Secretary of State of the
State of Delaware, no consent, order or authorization of, or registration,
declaration or filing with, any Governmental Authority is required in
connection with the execution, delivery and performance of this Agreement or
the consummation of the transactions contemplated hereby by Parent or Sub,
except for (a) consents, approvals, orders, authorizations, declarations and
filings as may be required under applicable state securities laws and (b) such
other consents, authorizations, filings, approvals and registrations which, if
not obtained or made, would not individually or in the aggregate have a
Material Adverse Effect.
Section 5.5 Purchase for Investment. Each of Parent and Sub is aware that
no shares of Common Stock are registered under the Securities Act or under any
state securities laws. Parent is acquiring such shares solely for investment,
with no present intention to distribute any such shares to any Person. Parent
will not sell or otherwise dispose of such shares except in compliance with
the registration requirements or exemptions provisions under the Securities
Act and the rules and regulations promulgated thereunder, and any other
applicable securities laws.
Section 5.6 Brokers, Finders, etc. Except Morgan Stanley & Co.
Incorporated and Merrill Lynch & Co., neither Parent nor Sub has employed, or
is subject to the valid claim of any broker, finder or other financial
intermediary in connection with the transactions contemplated by this
Agreement who might be entitled to a fee or commission.
ARTICLE VI
COVENANTS
Section 6.1 No Solicitation. Fremont and the Company agree that prior to
the earlier of the Closing or termination of this Agreement, neither Fremont
nor the Company will, and will cause their respective officers, directors,
employees and agents not to, initiate, solicit or encourage, directly or
indirectly, any inquiries or the making of any proposal with respect to, or
engage in any negotiations concerning, provide any confidential information or
data to, have any discussions with or enter into any agreements with, any
Person relating to any acquisition, business combination or purchase of all or
any portion of the
28
capital stock or assets of the Company or the Subsidiaries other than in the
ordinary course of business with regard to assets of the Company or the
Subsidiaries. Fremont and the Company will immediately cease and cause to be
terminated any existing activities, discussions or negotiations with any
parties conducted heretofore with respect to any such potential transactions
involving the Company or the Subsidiaries. Fremont and the Company shall
immediately notify Parent if any inquiries are received in respect of the
Company and the Subsidiaries, and shall provide details with respect thereto.
Section 6.2 No Changes with respect to Common Stock. Fremont agrees that
prior to the earlier of the Closing or termination of this Agreement, Fremont
will vote all shares of Common Stock owned by it in favor of approval of this
Agreement and the Merger and will not (i) sell, dispose of or otherwise
transfer any shares of its Stock, (ii) grant any Liens, or permit any Lien
other than Permitted Liens to exist, on any shares of its Stock or (iii) enter
into any agreement to effect any of the foregoing.
Section 6.3 Conduct of Business. During the period from the date hereof
to the Closing Date, without the prior written consent of Parent or except as
expressly contemplated by this Agreement (including without limitation Article
VII) or as described on Schedule 6.3, the Company agrees that the Company will
operate and carry on its business only in the ordinary course consistent with
past practices. Without limiting the generality of the foregoing, the Company
agrees that during the period from the date hereof to the Closing Date:
(a) none of the Company and its Subsidiaries will (i) issue, sell,
deliver, or agree to issue, sell or deliver, any capital stock, warrants,
options or similar rights or other corporate securities of which the
Company or any Subsidiary is the issuer or grantor, or grant or issue, or
agree to grant or issue, any options, warrants, incentive awards or
similar rights calling for the issuance of such securities; or (ii) enter
into any registration rights agreements;
(b) none of the Company and its Subsidiaries will repurchase or
redeem any shares of capital stock of the Company or any Subsidiary;
(c) none of the Company and its Subsidiaries will effect any
recapitalization of capital stock of the Company or any Subsidiary or
make any amendment, whether by merger, consolidation or otherwise, to the
certificate of incorporation or by-laws of the Company or any Subsidiary;
(d) no dividend, redemption or other distribution or payment shall
be declared made or paid in respect to the capital stock of the Company
other than payments in the
29
ordinary course and consistent with past practices for purposes of
estimated tax payments and payments under that certain letter
agreement, dated October 5, 1993, between Fremont and the Company;
(e) none of the Company and its Subsidiaries will (i) merge
or consolidate with or into any other corporation or entity, (ii)
liquidate, wind up or dissolve, (iii) sell, lease or otherwise
dispose of any of their properties or assets (including the capital
stock or assets of Subsidiaries), other than in the ordinary course
of business, except for transfers from one of the Company and its
Subsidiaries to another one of the Company and its Subsidiaries; (iv)
acquire by purchase the business, assets or stock of any other
business entity except for acquisitions with respect to which the
purchase price does not exceed $500,000 in any single transaction or
$1,500,000 in the aggregate; (v) pay, discharge, settle, compromise
or satisfy any material claims (including claims of stockholders),
liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), except for the payment,
discharge or satisfaction of liabilities or obligations in the
ordinary course of business consistent with past practice or in
accordance with their terms as in effect on the date hereof; (vi)
except to the extent required under existing employee and director
benefit plans, agreements or arrangements as in effect on the date of
this Agreement, increase the compensation or fringe benefits of any
of its directors, officers or employees, except for increases in
salary or wages of employees of the Company or its Subsidiaries who
are not officers of the Company in the ordinary course of business in
accordance with past practice, or grant any severance or termination
pay not currently required to be paid under existing severance plans
or enter into any employment, consulting or severance agreement or
arrangement with any present or former director, officer or other
employee of the Company or any of its Subsidiaries except for such
agreements and arrangements entered into with any employee (other
than officers) of any Subsidiary in the ordinary course of business
in accordance with past practice, or establish, adopt, enter into or
amend or terminate any collective bargaining, bonus, profit sharing,
thrift, compensation, stock option, restricted stock, pension,
retirement, deferred compensation, employment, termination, severance
or other plan, agreement, trust, fund, policy or arrangement for the
benefit of any directors, officers or employees; (vii) make any
capital expenditures or commitment, other than as provided in the
Company's 1996 capital expenditure budget approved by the Board of
Directors in December 1995; (viii) incur, assume or guarantee any
material Indebtedness that is not repayable by the Company without
penalty (other than prepayment penalties for breakage) upon three
Business Days' notice to the
30
lender; (ix) assume or incur any material Lien in respect to the property
of the Company or any of its Subsidiaries, other than Liens made in the
ordinary course of business; or (x) except in the ordinary course of
business consistent with past practice, enter into any contract,
agreement or other commitment which is not terminable by the parties upon
30 days' notice or less or which involves aggregate consideration in
excess of $500,000;
(f) except in the ordinary course of business and on an arm's length
basis, none of the Company and its Subsidiaries will enter into any
Affiliate Transactions or alter the terms of any existing arrangements
between the Company or any Subsidiary, on the one hand, and an Affiliate
of the Company (other than a Subsidiary of the Company), on the other
hand;
(g) none of the Company and its Subsidiaries will change any of
their tax or accounting policies except as required by law or under GAAP;
(h) neither Fremont nor the Company and the Subsidiaries shall take
any action or fail to take any action that could reasonably be expected
to result in the expiration, revocation, suspension or adverse
modification of any agreement with any Franchisee other than in the
ordinary course of business consistent with past practice;
(i) each of the Company and its Subsidiaries will use commercially
reasonable efforts (a) to preserve intact its business organization, (b)
to keep available to Parent the opportunity to retain the services of its
present employees and (c) to preserve the goodwill of its customers,
suppliers and employees, of the Franchisees and of others having business
relations with it;
(j) each of the Company and its Subsidiaries will comply in all
material respects with all Requirements of Law and will not fail to
prosecute with due diligence any applications to any Governmental
Authority material to the operation of the business, assets or properties
of the Company and the Subsidiaries; and
(k) none of the Company and its Subsidiaries will agree, whether in
writing or otherwise, to do any of the foregoing.
Section 6.4 Access. (a) Upon Fremont's receipt of confirmation that the
Fund has been deposited into the escrow pursuant to Section 3.5 hereof (the
"Deposit Date"), Fremont and the Company shall provide to Parent reasonable
access to the management of the Company, the Company's independent accountants
and counsel and the premises, books and records of the Company and the
Subsidiaries that relate to their business during their
31
normal business hours, and upon reasonable notice and shall furnish Parent
with such financial and operating data and other information with respect to
the business and properties of the Company and the Subsidiaries as Parent
shall from time to time reasonably request. With respect to the information
set forth on Schedule 6.4(a), (i) to the extent that any such information is
made available to Parent on a day (the "Full Compliance Date") that is after
May 2, 1996, then the June 14, 1996 termination date set forth in Section
9.1(c) shall be extended for each day that the Full Compliance Date is after
May 2, 1996 and (ii) to the extent that the Full Compliance Date is after May
2, 1996, then (A) the June 7, 1996 date set forth in the definition of Per
Share Interest Amount, (B) the June 14, 1996 date set forth in Section 3.5 and
(C) the May 31, 1996 date set forth in Section 7.5(c)(ii)(x) shall each be
extended for each day that the Full Compliance Date is after May 2, 1996. Any
information regarding the Company and the Subsidiaries heretofore obtained
from Fremont, the Company or the Subsidiaries (or representatives of any of
them) by Parent or its representatives or hereafter obtained from such persons
shall be subject to the terms of the Confidentiality Agreement and such
information shall be held by Parent and its representatives in accordance with
the terms of the Confidentiality Agreement.
(b) No investigation pursuant to this Section shall affect any
representation or warranty in this Agreement of any party hereto or any
condition to the obligations of the parties hereto.
Section 6.5 No Public Announcement. No party hereto shall make any public
announcement concerning the transactions contemplated by this Agreement
without the prior approval of the other parties, except as such announcement
may be required by law or the rules and regulations of a stock exchange, in
which case the party required to make the announcement shall use all
reasonable efforts to provide the other party with reasonable time under the
circumstances to comment on such announcement in advance of such announcement.
Notwithstanding the foregoing, the parties hereto shall make a mutually
acceptable press release as soon as practicable after the execution hereof,
and Fremont and the Company acknowledge that after the execution of this
Agreement, Parent may make other public disclosure of the transactions
contemplated by this Agreement (after giving Fremont the opportunity to review
and comment on such disclosure in advance of its release) and will file this
Agreement (without schedules) with the SEC.
Section 6.6 Notice of Developments. Prior to the Closing Date, Fremont
and the Company shall promptly notify Parent in writing of all events,
circumstances, facts and occurrences arising subsequent to the date of this
Agreement which could reasonably be expected to result in any breach of a
representation or warranty or covenant of Fremont or the Company in this
Agreement or which could reasonably be expected to have
32
the effect of making any representation or warranty of Fremont or the Company
in this Agreement untrue or incorrect in any material respect; provided that
the delivery of any notice pursuant to this Section shall not limit or
otherwise affect any remedies available to Parent.
Section 6.7 Expenses. Whether or not the transactions contemplated hereby
are consummated, all costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expenses; provided that all such costs and expenses incurred by
the Company or its Subsidiaries at the direction of Fremont shall not exceed
$500,000.
Section 6.8 Additional Agreements. (a) Subject to the terms and
conditions herein provided, each of the parties hereto agrees to use all
reasonable efforts to take, or cause to be taken, all action and to do, or
cause to be done, and to assist and cooperate with the other parties in doing,
all things necessary, proper or advisable to consummate and make effective, as
soon as reasonably practicable, the transactions contemplated by this
Agreement. Parent, Sub, Fremont and the Company will use their reasonable best
efforts and cooperate with one another (i) in promptly determining whether any
filings are required to be made or consents, approvals, waivers, licenses,
permits or authorizations are required to be obtained (or, which if not
obtained, would result in an event of default, termination or acceleration of
any agreement under any applicable law or regulation or from any Governmental
Authorities or third parties, including parties to loan agreements or other
debt instruments) in connection with the transactions contemplated by this
Agreement, and (ii) in promptly making any such filings, in furnishing
information required in connection therewith and in timely seeking to obtain
any such consents, approvals, permits or authorizations. In case at any time
after the Closing Date any further action is necessary, proper or advisable to
carry out the purposes of this Agreement, as soon as reasonably practicable,
each party to this Agreement shall cause its proper officers and/or directors
to take all such necessary action.
(b) The Company agrees to provide, and will cause the Subsidiaries and
its and their respective officers, employees, accountants and other advisors
to provide, reasonable cooperation in connection with the arrangement of any
financing to be consummated contemporaneously with or at or after the Closing
in respect of the transactions contemplated by this Agreement; provided that
Parent shall reimburse the Company and the Subsidiaries for any and all
out-of-pocket expenses incurred by any of such parties in connection with such
cooperation. In addition, in conjunction with the obtaining of any such
financing, the Company agrees, at the request of Parent, to (i) cooperate in
the refinancing of any of its existing Indebtedness, including calling for
prepayment or redemption of, or to prepay, redeem and/or renegotiate, as the
case may be, any existing
33
Indebtedness of the Company; provided that Parent agrees to hold the Company
harmless for any losses incurred by the Company as a result of any such calls
or prepayments if the Closing fails to occur as a result of the failure of any
condition set forth in Section 8.3 hereof and (ii) use its best efforts to
facilitate the release of any property of the Company or any of the
Subsidiaries subject to any Liens, including any accounts and chattel paper
which have been sold or any lockbox arrangements that have been entered into;
provided that no such prepayment, redemption or release need actually be made
until contemporaneously with the Closing.
ARTICLE VII
TAX MATTERS
Section 7.1 Transfer Taxes. Parent shall pay, or cause to be paid, all
transfer Taxes or fees, recordation or similar Taxes or fees, deed, stamp or
other Taxes, recording charges, fees, or other similar cost or expense of any
kind required in connection with the effectuation of the transactions
contemplated by this Agreement, whether such Tax or fee is imposed on Parent,
Sub, the Company, Fremont or any other stockholder of the Company.
Section 7.2 Tax Indemnification by Fremont. (a) Following the Closing,
Fremont shall indemnify and hold harmless Parent and its Affiliates (including
the Company and the Subsidiaries) and each of their respective directors,
officers, employees, agents, and other representatives from (i) all
liabilities for Federal income taxes and California franchise taxes
attributable to the Pre-Closing Tax Period; and (ii) all liabilities for
Federal income taxes arising as a result of Treasury Regulation section
1.1502-6(a) (or comparable provision under California franchise tax law)
attributable to Fremont or any other entity which has been affiliated with
Fremont (other than the Company and the Subsidiaries).
(b) Following the Closing if the Elections (as defined below) are made,
Fremont shall indemnify and hold harmless Parent and its Affiliates (including
the Company and the Subsidiaries) and each of their respective directors,
officers, employees, agents, and other representatives from (i) all Federal
income tax liability and California franchise tax liability of the Company and
the Subsidiaries directly attributable to the deemed sale of the assets of the
Company and the Subsidiaries arising under section 338(h)(10) of the Code and
comparable provision of California law (the "Deemed Sale") and (ii) all state
franchise or income tax liability to the extent that states, other than
California, require Deemed Sale treatment for the sale of the stock of the
Company pursuant to this Agreement; provided however, that such indemnity
shall not apply with respect to any
34
state with respect to which the Parent, the Company, or the Subsidiaries have
not complied with the provisions of Section 7.8.
(c) Fremont shall be entitled to all refunds in respect of all Taxes for
which it is providing an indemnity under this Agreement.
Section 7.3 Tax Indemnification By Parent. (a) Following the Closing,
Parent shall, and shall cause the Company to, indemnify Fremont and its
Affiliates and each of their respective officers, directors, employees, and
agents and hold them harmless from all liability for Taxes of the Company and
the Subsidiaries other than Taxes for which Fremont is responsible under
Section 7.2.
(b) Parent shall be entitled to all refunds in respect of all Taxes for
which it is providing an indemnity under this Agreement.
Section 7.4 Tax Returns. (a) Fremont shall be solely responsible for
filing all Federal income and California franchise Tax Returns for the
Pre-Closing Tax Period. Such Pre-Closing Tax Period Tax Returns shall reflect
the taxable income of the Company and the Subsidiaries computed on a basis
consistent with past practice, except for the effects of the transactions
contemplated by this Agreement. Fremont shall afford Parent the opportunity to
review such Tax Returns but all decisions regarding such Tax Returns shall
ultimately be made by Fremont. The Company and the Subsidiaries will end their
respective tax years for Federal income and California franchise tax purposes
at the end of the Closing Date.
(b) Except as otherwise provided in Section 7.4(a), Parent and the
Company shall be solely responsible for filing all Federal and California Tax
Returns for the period beginning after the Closing Date and for the filing of
all other Tax Returns; provided however that (i) except as provided in Section
7.8, no Tax Return for which Parent and the Company (or any Subsidiary) are
responsible shall be filed on the basis that there has been a Deemed Sale;
(ii) Parent, the Company, and its Subsidiaries shall afford Fremont the
opportunity to review all Tax Returns that include the Closing Date; (iii) the
manner of reporting the consequences of any Deemed Sale must be approved by
Fremont; and (iv) Parent, the Company, and the Subsidiaries shall (x) permit
Fremont to participate, at its cost, in any dispute or controversy with a
Taxing Authority regarding whether there has been a Deemed Sale and the
reporting of the consequences of any Deemed Sale and (y) not settle any such
dispute or controversy without the express approval of Fremont.
35
Section 7.5 Estimated Taxes and True Up.
(a) Prior to or on the Closing Date, the Company (and, where applicable,
the Subsidiaries) shall continue to make payments to Fremont in respect of its
Federal income and California franchise tax liability for the period ended
December 31, 1995 (the "1995 Period") and the period beginning January 1, 1996
and ending on and including the Closing Date (the "1996 Period"). Such
payments shall be determined in accordance with the Tax Sharing Agreements,
except with respect to the timing of the payment. In addition to the payments
required to be made by the Company for the 1995 Period under the Tax Sharing
Agreements, the Company shall pay $4,881,000 to Fremont prior to the Closing.
Fremont, the Company, and Parent will in good faith endeavor to calculate the
Federal and California taxable income of the Company (and, where applicable,
the Subsidiaries) for the 1996 Period prior to September 30, 1996.
(b) Prior to the due dates for the Federal income and California
franchise Tax Returns for the 1995 Period and the 1996 Period, respectively,
Fremont shall deliver to the Parent a schedule (the "True-up Schedule")
showing (x) the Federal income and California franchise tax liability of the
Company (and, where applicable, the Subsidiaries) for the appropriate period
computed in accordance with this Section 7.5 and the Tax Sharing Agreements
and (y) the amount of payments previously made by the Company in respect of
such liabilities (in respect of any particular Tax Return, the difference
between (x) and (y) is hereinafter referred to as the "True-up Amount").
Within 10 days after the delivery of the True-up Schedule, (i) Parent shall
pay or cause the Company to pay to Fremont the excess of (x) over (y) or (ii)
Fremont shall pay to the Company the excess of (y) over (x).
(c) For purposes of calculating the True-up Amount,
(i) the effects of the Deemed Sale shall not be considered; (ii) the
payments made with respect to each Employee Option pursuant to Section 3.4 and
other employee plans shall be treated as attributable to the 1996 Period and
the deductions attributable to such payments (x) shall first be used to reduce
the taxable income of the Company (and, where applicable, the Subsidiaries)
for the 1996 Period but only up to and including May 31, 1996, but not below
zero and (y) the balance, if any, shall be fully available to Fremont without,
notwithstanding the Tax Sharing Agreements, the need to compensate the Company
or the Subsidiaries for the Tax benefits attributable to such deductions; and
(iii) the taxable income of the Company and the Subsidiaries shall be computed
consistently with past practice.
(d) Notwithstanding the Tax Sharing Agreements, (i) Fremont shall be
entitled, without compensating the Company or the Subsidiaries, to use any Tax
attributes of the Company and the Subsidiaries to the extent such attributes
cannot be fully used to reduce the taxable income or Taxes of the Company for
the
36
1996 Period and (ii) the payments referenced in Section 7.5(c)(ii) shall be
treated as attributable to the 1996 Period for all Tax purposes.
(e) Notwithstanding the Tax Sharing Agreements, the Company or the
Subsidiaries may not amend any Federal income or California franchise Tax
Return, or carryback any item into a prior tax period for purposes of such
taxes without the approval of Fremont, which approval can be denied in its
sole and absolute discretion.
(f) The Tax Sharing Agreements and other Tax arrangements among Fremont,
the Company, and the Subsidiaries, shall be terminated as of the Closing Date,
except to the extent otherwise provided in this Agreement.
Section 7.6 Procedures Relating to Indemnification of Tax Claims.
(a) If a claim shall be made by any Taxing Authority, which, if
successful, might result in an indemnity payment to a party (the "First
Party"), one of its Affiliates or any of their respective directors, officers,
employees, agents or representatives pursuant to this Section 7.6, the First
Party shall promptly and in any event no more than 15 days following the First
Party's receipt of such claim, give notice to the other party (the "Second
Party") in writing of such claim (a "Tax Claim"); provided, however, the
failure of the First Party to give such notice shall not relieve the Second
Party from any indemnification obligations hereunder unless the failure to
give prompt notice jeopardizes the Second Party's ability to defend such
claim.
(b) With respect to any Tax Claim for Taxes that Fremont may be liable
under this Agreement (including the income and franchise Tax consequences of a
Deemed Sale), Fremont shall control, at its cost, all proceedings and may make
all decisions taken in connection with such Tax Claim (including selection of
counsel) and, without limiting the foregoing, may in its sole discretion
pursue or forego any and all administrative appeals, proceedings, hearings and
conferences with any Taxing Authority with respect thereto, and may, in its
sole discretion, either pay the Tax claimed and sue for a refund where
applicable law permits such refund suits or contest the Tax Claim in any
permissible manner. Without limiting the control of the Tax Claim by Fremont
as set forth above, Fremont shall allow Parent or the Company to participate
as an observer, at its cost, in any dispute or controversy with any Taxing
Authority with respect to the Tax Claims described in this Section 7.6(b).
(c) With respect to any Tax Claim for Taxes that Parent or the Company
may be liable, Parent shall, except as provided in Section 7.6(b), control all
proceedings relating to such Taxes.
37
Section 7.7 Cooperation with Respect to Tax Matters.
Fremont, Parent, the Company and each of their respective Affiliates
(including the Subsidiaries) shall reasonably cooperate with each other in the
filing of Tax Returns and in contesting any Tax Claim, which cooperation shall
include the retention and, upon the request of the party or parties filing
such Tax Returns or controlling proceedings relating to such Tax Claim, the
provision to such party or parties of records and information which are
reasonably relevant to such Tax Returns or such Tax Claim, and making
employees available on a mutually convenient basis to provide additional
information, explanation of any material provided hereunder, assistance in
completing such Tax Returns or to testify at proceedings relating to such Tax
Claim. The party requesting such information shall pay the reasonable external
costs of the party providing the requested information. All costs of preparing
the Tax Returns for the Pre-Closing Tax Period shall be borne by the Company
except the costs of Fremont and its advisors.
Section 7.8 Section 338 Election. (a) Fremont agrees, if so directed by
Parent, to join with Parent in making a timely election pursuant to Sections
338(g), and 338(h)(10) of the Code, and comparable provisions of California
tax law (the "Elections") with respect to the acquisition of the shares of the
capital stock of the Company and the Subsidiaries, which Parent has listed in
Schedule 4.2(d) (the Company together with such Subsidiaries are referred to
in this Section 7.8 as the "338 Entities"); provided however that if Parent
directs Fremont to make the Elections, the Elections must be made for all
Subsidiaries unless Fremont consents, in writing, to exclude a particular
Subsidiary.
(b) To the extent possible, Fremont and Parent agree to execute at the
Closing all forms necessary to effectuate the Elections (including without
limitation Internal Revenue Service Form 8023 and any similar forms under
California law (the "Section 338 Forms"). If any Section 338 Forms are not
executed at the Closing, Fremont and Parent will prepare and complete each
such Section 338 Form no later than 90 days before the date on which such Form
is required to be filed. Fremont and Parent shall each cause the Section 338
Forms to be duly executed by an authorized person and shall duly and timely
file the Section 338 Forms in accordance with applicable tax laws and the
terms of this Agreement. Fremont agrees that they will procure the assistance
of any of their Affiliates to the extent necessary to effectuate properly the
Elections (including without limitation the execution of any required forms).
(c) Parent and Fremont will allocate the deemed sales price among the
assets of the 338 Entities for Tax purposes in accordance with the classes of
assets set forth in Section 338 of the Code and the applicable Treasury
Regulations. Fremont and Parent shall in good faith endeavor to arrive at a
mutually
38
agreeable allocation of the deemed sales price among such assets for Tax
purposes. If Fremont and Parent cannot decide on the appropriate allocation of
the deemed sales price among the assets of the 338 Entities for Tax purposes,
Fremont and Parent will jointly appoint Price Waterhouse to make such
allocation. Price Waterhouse's determination of such allocations shall be
binding on Fremont and Parent, and Parent, Fremont, the Company, and the
Subsidiaries shall file all Tax Returns consistently with the allocation set
forth in this Section 7.8(c).
(d) Fremont shall not be required to join in an Election with respect to
any jurisdiction other than as set forth in Section 7.8(a) (the "Non-Electing
Jurisdiction(s)") nor shall Parent, the Company or the Subsidiaries be
permitted to make an Election with respect to any Non-Electing Jurisdiction.
Fremont shall be permitted to make, and Parent, the Company, and the
Subsidiaries will cooperate with Fremont in making, any appropriate election
under the laws of any Non-Electing Jurisdiction so that the sale of stock
pursuant to this Agreement will not be treated as a Deemed Sale in such
jurisdictions. Parent, the Company, and the Subsidiaries will file Tax Returns
in the Non-Electing Jurisdictions in accordance with this Section 7.8. Fremont
will use its best efforts to notify Parent and the Company, within 2 1/2
months of the Closing, of the jurisdictions with respect to which Fremont will
not agree to Deemed Sale treatment (or with respect to which it wishes to
elect out), together with any available legal authorities.
(e) Notwithstanding Section 7.8(d), if, within 30 days of Fremont's
delivery of notice under Section 7.8(d), Parent shall deliver a certificate
signed by a duly authorized officer of Parent to the effect that, after due
inquiry and in good faith (including making available to Fremont the legal
authorities and analyses for their conclusion), Parent believes that there is
no reasonable basis under the applicable income or franchise tax law of a
Non-Electing Jurisdiction to not report the sale of stock under this Agreement
as a Deemed Sale, then the issue of whether the sale of stock under this
Agreement must be reported as a Deemed Sale will be referred to Price
Waterhouse who will be required either to (i) give an opinion that there is no
reasonable basis under the applicable income or franchise tax law of such
jurisdiction to not report the sale of stock under this Agreement as a Deemed
Sale, in which case the applicable Tax Return will be filed on the basis of a
Deemed Sale for such Non-Electing Jurisdiction; or (ii) give an opinion that
there is a reasonable basis under such law to report the sale of stock under
this Agreement as a sale of stock, in which case the applicable Tax Return
shall be filed on the basis that there is no Deemed Sale for such Non-Electing
Jurisdiction. The costs and expenses of Price Waterhouse shall be shared
equally by Fremont and Parent.
39
ARTICLE VIII
CONDITIONS TO THE CLOSING
Section 8.1 Conditions of Obligation of Each Party. The respective
obligations of each party to effect the Closing are subject to the condition
precedent that at or prior to the Closing Date there shall be no temporary
restraining order, preliminary or permanent injunction or other order issued
by any court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the transactions contemplated hereby in effect,
nor shall any proceeding by any Governmental Authority seeking any of the
foregoing be pending. There shall not be in effect any statute, rule,
regulation or order of any Governmental Authority which prohibits or makes
illegal the transactions contemplated by this Agreement.
Section 8.2 Additional Conditions to the Obligations of Parent. The
obligations of Parent and Sub are also subject to fulfillment (or waiver by
Parent) at or prior to the Closing Date of each of the following conditions
precedent:
(a) Representations and Warranties. The representations and
warranties of Fremont and the Company contained in Article IV of this
Agreement shall be true and correct on the date of this Agreement and as
of the Closing Date as though made at and as of the Closing Date, except
(i) for changes permitted or contemplated by this Agreement, (ii) to the
extent they expressly refer to an earlier time, in which case they shall
be true and correct as of such time and (iii) for representations and
warranties not containing any materiality qualifier, in which case such
representations and warranties shall be true and correct in all material
respects.
(b) Performance of Covenants. Each of Fremont and the Company shall
have duly performed and complied with each covenant, agreement and
condition required by this Agreement to be performed or complied with by
it prior to or on the Closing Date, except where such non-performance or
non-compliance does not have, or would not reasonably be expected to
have, a Material Adverse Effect.
(c) No Material Adverse Change. There shall have been no development
or event which has had or would reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect.
(d) Officer's Certificates. Parent shall have received from Fremont
and the Company a certificate as to the matters described in Sections
8.2(a) and 8.2(b).
(e) Corporate Action. Parent shall have received: (i) a copy of the
resolutions duly adopted by the Board of
40
Directors and the board of directors of Fremont authorizing the
execution, delivery and performance by the Company and Fremont of this
Agreement, certified by the Secretary or an Assistant Secretary of the
Company and Fremont, respectively; (ii) a copy of the resolutions duly
adopted by the stockholders of the Company authorizing the Merger and the
execution, delivery and performance by the Company of this Agreement,
certified by the Secretary or an Assistant Secretary of the Company; and
(iii) a certificate of the Secretary or an Assistant Secretary of the
Company and Fremont as to the incumbency and signature of the officer of
the Company and Fremont executing this Agreement and any certificate
delivered to Parent hereunder.
(f) Resignations. The directors of the Company shall have tendered
their written resignations from the Board of Directors of the Company,
effective upon consummation of the Closing.
(g) Termination of Affiliate Transactions. The Company and Fremont
shall have delivered to Parent legally binding documentation evidencing
the termination of all agreements between Fremont and the Company of any
kind, including without limitation all agreements set forth in Schedule
4.2(p) (other than the agreements set forth on Schedule 8.2(g)) and any
other stockholders, registration rights, subscription, contribution,
management, advisory and service agreements between the Company or any of
its Subsidiaries, on the one hand, and Fremont or its Affiliates, on the
other hand. The Company shall have delivered to Parent evidence that it
has received waivers of all rights granted to Fremont under the
agreements set forth in Schedule 4.2(p) (other than the agreements set
forth on Schedule 8.2(g)) with respect to the execution of this Agreement
and the consummation of the transactions contemplated by this Agreement.
(h) Consents. All consents of other parties under any Governmental
Authority or any of the Material Contracts, licenses and permits of the
Company and the Subsidiaries relating to the operation of the business or
required for the consummation of the transactions contemplated by this
Agreement and identified in Schedule 8.2(h) shall have been obtained.
(i) No Appraisal Rights. No right of appraisal of any holder of
issued and outstanding capital stock of the Company shall have been
asserted in writing to the Company or otherwise exercised.
41
Section 8.3 Additional Conditions to the Obligations of the Company and
Fremont. The obligations of the Company and Fremont are also subject to
fulfillment (or waiver by Fremont) at or prior to the Closing Date of each of
the following conditions precedent:
(a) Representations and Warranties. The representations and
warranties of Parent and Sub contained in Article V of this Agreement
shall be true and correct on the date of this Agreement and as of the
Closing Date as though made at and as of the Closing Date, except for (i)
changes permitted or contemplated by this Agreement, (ii) to the extent
they expressly refer to an earlier time, in which case they shall be true
and correct as of such time and (iii) for representations and warranties
not containing any materiality qualifier, in which case such
representations and warranties shall be true and correct in all material
respects.
(b) Performance of Covenants. Parent and Sub shall have duly
performed and complied with each covenant, agreement and condition
required by this Agreement to be performed or complied with by it prior
to or on the Closing Date, except where such non-performance or
non-compliance do not have, or would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect.
(c) Officer's Certificate. Fremont shall have received from a duly
authorized senior officer of Parent a certificate as to the matters
described in Sections 8.3(a) and 8.3(b).
(d) Corporate Action. Fremont shall have received: (i) a copy of the
resolutions duly adopted by the board of directors of Parent and Sub
authorizing the execution, delivery and performance by Parent and Sub of
this Agreement, certified by the Secretary or an Assistant Secretary of
Parent and the Secretary of Sub; and (ii) a certificate of the Secretary
or an Assistant Secretary of Parent as to the incumbency and signature of
the officer of Parent and Sub executing this Agreement.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
Section 9.1 Termination. Subject to delivery of the Fund pursuant to
Section 9.2(b) or 9.2(c), as the case may be, this Agreement may be terminated
at any time prior to the Closing:
(a) by mutual agreement of Fremont and Parent;
42
(b) (i) by Parent upon notice given to Fremont in the event that
Fremont or the Company shall, contrary to the terms of this Agreement,
fail or refuse to consummate the transactions contemplated hereby or to
take any other action referred to herein necessary to consummate the
transactions contemplated hereby, after affording Fremont a 30-day period
after notice in which to cure, or (ii) by Fremont upon notice given to
Parent in the event that Parent and Sub shall, contrary to the terms of
this Agreement, fail or refuse to consummate the transactions
contemplated hereby or to take any other action referred to herein or in
the Confidentiality Agreement necessary to consummate the transactions
contemplated hereby, after affording Parent a 30-day period after notice
in which to cure;
(c) (i) by Parent upon notice given to Fremont if the Closing shall
not have taken place on or before June 14, 1996; provided that the
failure of the Closing to occur on or before such date is not the result
of the breach of any covenants, agreements, representations or warranties
hereunder of Parent or Sub or (ii) by Fremont upon notice given to Parent
if the Closing shall not have taken place on or before June 14, 1996;
provided that the failure of the Closing to occur on or before such date
is not the result of an event set forth in Section 9.2(b);
(d) by Parent, on the one hand, or Fremont on the other hand, upon
notice given to the other if any court or Governmental Authority of
competent jurisdiction shall have issued a final permanent order,
enjoining or otherwise prohibiting the transactions contemplated by this
Agreement;
(e) by Parent, upon a breach of any representation, warranty,
covenant or agreement on the part of the Company or Fremont set forth in
this Agreement, or if any representation or warranty of the Company or
Fremont shall have become untrue, in either case such that the conditions
set forth in Section 8.2(a) or Section 8.2(b) would not be satisfied as
of the time of such breach or as of the time such representation or
warranty shall have become untrue, provided that if such inaccuracy in
the Company's or Fremont's representations and warranties or breach by
the Company or Fremont is curable through the exercise of its reasonable
efforts and for so long as the Company or Fremont continues to exercise
such reasonable efforts, Parent may not terminate this Agreement under
this Section 9.1(e);
(f) by Fremont, upon a breach of any representation, warranty,
covenant or agreement on the part of Parent or Sub set forth in this
Agreement, or if any representation or warranty of Parent or Sub shall
have become untrue, in either case such that the conditions set forth in
Section 8.3(a) or Section 8.3(b) would not be satisfied as of the time of
such breach or as of the time such representation or
43
warranty shall have become untrue, provided that if such inaccuracy in
Parent's or Sub's representations and warranties or breach by Parent or
Sub curable through the exercise of its reasonable efforts and for so
long as Parent or Sub continues to exercise such reasonable efforts,
Fremont may not terminate this Agreement under this Section 9.1(f); or
(g) by Parent upon notice given to Fremont by the fifth Business Day
after the date hereof; provided that notice of termination pursuant to
this Section 9.1(g) shall be accompanied by the return of all copies of
the Information (as defined in the Confidentiality Agreement) and
certification of destruction as required by Paragraph 3 of the
Confidentiality Agreement.
Section 9.2 Effect of Termination. (a) In the event of the termination of
this Agreement as provided in Section 9.1, subject to delivery of the Fund
pursuant to Section 9.2(b) or 9.2(c) as the case may be, all of the
obligations and liabilities of the parties under this Agreement shall
terminate and each party hereto shall pay its own fees and expenses incurred
in connection with the negotiation, preparation, execution and performance of
this Agreement, including without limitation the fees and expenses of
attorneys, accountants and other advisors; provided that nothing in this
Section 9.2 shall relieve any party from any liability for any breach of this
Agreement; provided that neither Fremont nor the Company shall have any
liability for any breach of this Agreement, unless this Agreement will have
been terminated as a result of an event set forth in Section 9.2(b).
Notwithstanding this Section 9.2, the obligations of the parties to this
Agreement under Sections 6.7, 6.8(b) and 10.4 shall survive any such
termination.
(b) In the event of the termination of this Agreement as provided in
Section 9.1 in any of the following circumstances, Fremont and Parent agree
that all amounts in the Fund held by the Escrow Agent shall be promptly
delivered to Parent and neither Fremont nor the Company shall have any claim
to any amount held by the Escrow Agent in the Fund:
(i) Any representation or warranty made by Fremont in Sections
4.1(a), (b) or (c) fails to be true and correct in all material respects
on the Closing Date;
(ii) Any representation or warranty made by the Company in the
penultimate sentence of Section 4.2(a) or in Section 4.2(b) fails to be
true and correct in all material respects on the Closing Date;
(iii) Fremont or the Company, as applicable, fails (A) to comply
with or perform the covenants of Fremont or the Company, as applicable,
set forth in Sections 3.2, 3.3(c), 3.4, 6.1, 6.2, 6.3 and 6.4 in all
material respects, (B) to
44
use its commercially reasonable best efforts to obtain the consents set
forth on Schedule 8.2(h) or (C) to act in good faith with respect to any
action reasonably requested of Fremont or the Company by Parent under
Section 6.8 the failure of which would reasonably be expected to have a
(x) Material Adverse Effect or (y) material adverse effect on Parent's or
the Company's ability to finance the Merger or to refinance the
Indebtedness of the Company and its Subsidiaries outstanding on the date
hereof; and
(iv) The failure of the representations and warranties made by
Fremont or the Company to be true and correct in all material respects
and the non-compliance or non-performance of the covenants of Fremont or
the Company set forth herein, in the aggregate, cause a diminution in the
value of the Company's equity in excess of $65,000,000.
(c) In the event of the termination of this Agreement as provided in
Section 9.1 as a result of any event other than those set forth in Section
9.2(b), the parties hereto agree that all amounts contained in the Fund will
be promptly delivered to the Company and its stockholders in the manner set
forth in Schedule 9.2(b).
(d) Notwithstanding any provision set forth in this Article IX to the
contrary, the Company shall have no further obligation under Section 6.3 upon
any purported termination of this Agreement pursuant to Section 9.1
irrespective of whether the Fund will have been released from escrow.
ARTICLE X
MISCELLANEOUS
Section 10.1 Survival. None of the representations and warranties made by
the parties in this Agreement, including the schedules hereto and the
certificates delivered in accordance with Sections 8.2(d) and 8.3(c) hereof,
shall survive the Closing. None of the covenants made by the parties in this
Agreement that are required to be performed prior to the Closing shall survive
the Closing. All of the covenants made by the parties in this Agreement that
are required to be performed after the Closing shall survive the Closing. As
of the Effective Time, all of Parent's and Fremont's rights and obligations
under the Confidentiality Agreement (excluding such rights and obligations
under paragraphs 5, 9, 12 and 13 thereof) shall terminate.
Section 10.2 Employees. The parties hereto agree that employment of all
persons actively employed (including those on leave of absence) by the Company
or any Subsidiary immediately prior to the Closing Date (the "Transitioned
Employees") shall not be deemed terminated or interrupted by reason of the
45
transactions contemplated by this Agreement. Nothing contained in this
Agreement shall (i) restrict or otherwise inhibit Parent's rights to terminate
the employment of any Transitioned Employees on or after the Closing Date or
(ii) be construed or interpreted to restrict Parent's right or authority to
amend or terminate any employee benefit plans, policies or programs of Parent,
the Company or any Subsidiary.
Section 10.3 Brokers and Financial Advisors. Fremont, on the one hand,
and Parent, on the other hand, shall be solely responsible for, and shall
indemnify the other party in respect of, any brokerage or finder's fees,
financial advisory fees and other similar fees and the expenses related
thereto based on arrangements or undertakings made by such party or any of its
Affiliates (including the Company and the Subsidiaries, in the case of
Fremont) in connection with the transactions contemplated hereby, including
without limitation the fees and expenses of Morgan Stanley & Co. Incorporated
and Merrill Lynch & Co., in the case of Parent.
Section 10.4 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally or
transmitted by facsimile or mailed by registered or certified mail (return
receipt requested) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
if to Parent, to:
HFS Incorporated
339 Jefferson Road
Parsippany, New Jersey 07054
Attention: James E. Buckman, Esq.
Facsimile: 201-428-3260
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: Robert L. Friedman, Esq.
Facsimile: 212-455-2502
if to Fremont or the Company to:
Fremont Investors, Inc.
50 Fremont Street, Suite 3700
San Francisco, California 94105
Attention: Robert Jaunich II
Facsimile: 415-284-8191
with a copy to:
Fremont Investors, Inc.
50 Fremont Street, Suite 3700
46
San Francisco, California 94105
Attention: Timothy H. Hosking, Esq.
Facsimile: 415-512-7121
and with a copy to:
Skadden, Arps, Slate, Meagher & Flom
Four Embarcadero Center
Suite 3800
San Francisco, California 94111
Attention: Kenton J. King, Esq.
Facsimile: 415-984-2698
Section 10.5 Interpretation. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 10.6 No Third Party Beneficiaries. Nothing herein express or
implied shall confer upon any of the employees of Fremont, the Company, any
Subsidiary, Parent, Sub, or any of their respective Affiliates, or any third
party, any rights or remedies, including without limitation any right to
employment, or continued employment for any specified period, of any nature or
kind under or by reason of this Agreement.
Section 10.7 Amendment. At any time prior the Effective Time, this
Agreement may be amended by the parties hereto, by action taken by their
respective Board of Directors, provided that no amendment shall be made that
reduces the amount of the consideration to be paid to the stockholders of the
Company or that in any way adversely affects the rights of such stockholders
without the further approval of such stockholders. Without limiting the
foregoing, this Agreement and the Schedules hereto may not be amended except
by an instrument or instruments in writing signed and delivered on behalf of
each of the parties hereto.
Section 10.8 Extension; Waiver. At any time prior to the Effective Time,
any party hereto which is entitled to the benefits hereof may (a) extend the
time for the performance of any of the obligations or other acts of the other
party, (b) waive any inaccuracy in the representations and warranties of the
other party contained herein or in any schedule hereto or in any document
delivered pursuant hereto, and (c) waive compliance with any of the agreements
of the other party hereto or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid if set
forth in an instrument in writing signed and delivered on behalf of such
party.
47
Section 10.9 Entire Agreement. This Agreement (including the schedules,
documents and instruments referred to herein), the Escrow Agreement and the
Confidentiality Agreement constitute the entire agreement and supersede all
other prior agreements and understandings, both written and oral, among the
parties hereto with respect to the subject matter hereof. The provisions of
this Agreement shall supersede any contrary or inconsistent provisions set
forth in Paragraph 10 of the Confidentiality Agreement.
Section 10.10 Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns. Notwithstanding the foregoing, this
Agreement shall not be assignable by any party hereto (other than by operation
of law) without the prior written consent of the other parties hereto,
provided, that Parent may assign its rights hereunder to any of its
Affiliates, provided, further, that any such assignment shall not release
Parent from any of its obligations hereunder.
Section 10.11 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS
OF THE STATE OF NEW YORK (REGARDLESS OF THE LAWS THAT MIGHT OTHERWISE GOVERN
UNDER APPLICABLE NEW YORK PRINCIPLES OF CONFLICTS OF LAW) AS TO ALL MATTERS,
INCLUDING BUT NOT LIMITED TO MATTERS OF VALIDITY, CONSTRUCTION, EFFECT,
PREFERENCE AND REMEDIES. EACH PARTY HERETO IRREVOCABLE SUBMITS TO THE
EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE NORTHERN
DISTRICT OF CALIFORNIA, OR IF THAT COURT DOES NOT HAVE SUBJECT MATTER
JURISDICTION, OF ANY STATE COURT LOCATED IN THE CITY OF SAN FRANCISCO,
CALIFORNIA. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY LAW, (I) ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO
LAYING VENUE OF ANY SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH COURT AND (II)
ANY CLAIM THAT ANY SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH COURTS HAS BEEN
BROUGHT IN AN INCONVENIENT FORUM.
Section 10.12 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but which together
shall constitute a single agreement.
48
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on their behalf by their respective officersk thereunto duly
authorized all as of the date first written above.
HFS INCORPORATED
By: /s/ James E. Buckman
----------------------
Name: James E. Buckman
Title: Executive Vice President
CBC ACQUISITION CORP.
By: /s/ James E. Buckman
______________________
Name: James E. Buckman
Title: Executive Vice President
FREMONT INVESTORS, INC.
By: /s/ Robert Jaunich
______________________
Name: Robert Jaunich
Title:
COLDWELL BANKER CORPORATION
By: /s/ Robert Jaunich
______________________
Name: Robert Jaunich
Title: